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Full text of "Information management by Federal regulatory agencies : hearings before the Subcommittee on Reports, Accounting, and Management of the Committee on Government Operations, United States Senate, Ninety-fourth Congress, first session .."

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JULY 22 AND 24, 1975 


Printed for the use of the Committee on Government Operations 

r O WASHINGTON : 1975 

For sale by the Superintendent of Documents, U.S. Qovemment Printing Office 
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ABRAHAM RIBICOFF, Connecticut, Chairman 



LEE METCALF, Montana BILL BROCK, Tennessee 

JAMES B. ALLEN, Alabama LOWELL P. WEICKER, Jr., Connecticut 

SAM NUNN, Georgia 

Richard A. Wkgman, Chief Counsel and Staff Director 

Paul Hoff, Counsel 

Paul L. Leventhal, Counsel 

Eli E. Nobleman, Counsel 

Matthew Schneider, Counsel 

John B. Childeks, Chief Counsel to the Minority 

Brian Conboy, Special Counsel to the Minority 

Marilyn A. Harris, Chief Clerk 

Elizabeth A. Preast, Assistant Chief Clerk 

Harold C. Anderson, Staff Editor 

Subcommittee on Reports, Accounting and Management 

LEE METCALF, Montana, Chairman 
JOHN L. McCLELLAN, Arkansas BILL BROCK, Tennessee 


SAM NUNN, Georgia LOWELL P. WEICKER, JR., Connecticut 


Vic Reinemer, Staff Director 

E. Winslow Turner, Chief Counsel 

Lyle Ryter, Minority Counsel 

Jack Chesson, Counsel 

Gerald Sturges, Professional Staff Member 

Jeanne A. McNaughton, Chief Clerk 





Tuesday, July 22, 1974 

Clayman, Jacob, secretary-treasurer, Industrial Union Department, AFL- 

CIO, Washington, D.C., accompanied by Richard Prosten, director, Page 

Research Department, and Brian Turner, staff member 7 

Allen, June, North Anna Environmental Coalition, Charlottesville, Va 78 

Silbergeld, Mark, attorney. Consumers Union, Washington office 141 

Thursday, July 24, 1975 

Nadel, Mark V., assistant professor of government, Cornell University___ 163 
Green, Mark, director, Corporate Accountabihty Research Group, Wash- 
ington, D.C., and accompanied by Irene Till, economist 180 


Senator Metcalf: 

Opening statement 1 

Excerpt from the Congressional Record, June 10, 1975 2 

Letter from John A. Gradj^, Chairman of the Interagency Regulatory 
Accountants Committee, re expressing thoughts on Information 
Management, June 23, 1975 3 

Letter from James L. Pate, Assistant Secretary for Economic Affairs, 
U.S. Department of Commerce, re requesting information relating to 
the clearance of BEA's report forms on U.S. direct investment 
abroad by the National Advisory Council on International Monetary 

and Financial Policies, July 30, 1975 (with enclosures) 44 

Memorandum to James A. Griffin, Chairman, NAC Working 
Group on Foreign Investment Surveys, from George R. Kruer, 
Chief, International Investment Division, U.S. Department of 

Commerce, July 30, 1974 46 

Memorandum to NAC Working Group, from James A. Griffin, 
Chairman, NAC Working Group on Foreign Investment Sur- 
veys, August 13, 1974 (with attachment) 51 

Memorandum to Fred Springborn, executive secretary, National 
Advisory Council on International Monetary and Financial 
Policies, from George R. Kruer, Chief, International Invest- 
ment Division, U.S. Department of Commerce, June 24, 1974_ _ 54 
Letter from James L. Pate, Assistant Secretary for Economic Affairs, 
U.S. Department of Commerce, re list of NAC members and list of 

members of the "working group", August 12, 1975 67 

Letter from Mark Silbergeld, attorney, Washington office. Consumers 
Union, re update of portion of testimony of July 22, 1975, dated 
July23, 1975 142 

Alphabetical List of Witnesses 
Allen, June: 

Map indicating location of North Anna Reactor 80 

Photo showing North Anna Reactor under construction above fault 

visible in excavation for reactor No. 3 81 

Excerpts from papers by Dr. Ralph E. Lapp, atomic scientist who 

supports the use of nuclear energy 91 



Alphabetiaal List of Witnesses — Continued 

Allen, June — Continued Page 

Some biological hazards of the Point Beach Nuclear Power Plant in 
Wisconsin, by Irving Lyon, Fellow of the American Association for 
the Advancement of Science and Consultant for the Dairy Industry^ 94 

Chronology of geological concern at the North Anna Nuclear Station, 110 

Progress report of the North Anna Environmental Coalition of Novem- 
ber 1973, prepared at the request of Congress Watch, a Nader 
organization in Washington, D.C 115 

Chronology of events of 1970 at nuclear excavation raises serious 

questions and doubts in public mind 119 

NAEC calls AEC investigation report "Fraudulent", release of 

April 11, 1974 123 

Geological report of the North Anna Nuclear Power Station, 
Virginia , 126 

Letter to Prof. William Rodgers, Georgetown University Law Center, 
Washington, D.C, from Paul J. Roper, assistant professor, June 3, 

1975 133 

Clayman, Jacob: 

Questionnaires : 

Parent firm form (with deletions recommended by National 

Advisory Committee) 18 

Parent firm form (with deletions recommended by Bureau of 

Economic Analysis) 23 

Affiliate firm form (with deletions recommended by National 

Advisory Committee) 28 

Affiliate firm form (with deletions recommended by the Bureau 

of Economic Analysis) , 36 

Functions of the Industrial Union Department, AFL-CIO 69 

Biographical sketch 69 

Prepared statement 70 

Green, Mark: 

Testimony 180 

Prepared statement 187 

Nadel, Mark V. : 

Testimony 163 

Prepared statement 168 

Silbergeld, Mark: 

Testimony 141 

Prepared statement 144 

Letter to Senator Metcalf of July 23, 1975, re updating portion of 
testimony of July 22 on information management by regulatory 

agenc'es 1 142 

Till, Irene: 

Prepared statement 180 


Lawing, Jim, a Representative in Congress from the State of Kansas : 

Letter to the Committee on Government Operations answering three 
specific questions of special concern as a lawyer representing the 

Kansas Civil Liberties Union's efforts 199 

"The Concentration of Economic Power," by MarKley Roberts, economist 

in the AFL-CIO Department of Research 203 

Letter to Vic Reinemer, staff director. Subcommittee on Reports, Ac- 
counting and Management, from Kenneth A. Guenther, Assistant to 
the Board of Governors, Federal Reserve System, dated September 16, 
1975, re: commercial banks that participated in the Board of Governors' 
Monthly Interest Rate Survey for the month of November 1974, and 

that failed to so participate for the month of July 1975 __. 209 

Article: Vepco Fined $60,000 for A-Plant Fault, 'from the Washington 

Post, September 12, 1975, by Hal Willard 210 


TUESDAY, JULY 22, 1975 

U.S. Senate, 
Subcommittee on Reports, Accounting, and 
Management of the Committee on Go\t:rnment Operations, 

Washington^ D.C. 
The subcommittee met at 10 :20 a.m., pursuant to call, in room 
1318, Dirksen Senate Office Building;, Senator Lee Metcalf (chair- 
man of the subcommittee) presiding. 
Present : Senator Metcalf. 

Also present: Vic Reinemer, staff director; E. Winslow Turner, 
chief counsel; Jeanne A. McNaughton, chief clerk; Lyle Ryter, 
minority counsel ; John B. Chesson III, counsel ; and Gerald Sturges, 
professional staff member. 


Senator Metcalf. The subcommittee will be in order. 

The Subcommittee on Reports, Accounting, and Management to- 
day begins hearings on Information INIanagement by Federal Regu- 
latory Agencies. 

We are seeking answers to two large questions: 

One : How good is the data upon which Government regulatory 
decisions are based? 

Two : How can its accuracy, adequacy, timeliness, and availability 
be improved? 

To put it another way, I will cite what Pearson Hunt termed in 
the ]May-June issue of the Harvard Business Review as the "Law 
of Information." 

Mr. Hunt said that when in Ireland recently he came upon this 
law developed by one Professor Finagle. This law has three pro- 
visions : 

One: The information we have is not what we want; 

Two: The information we want is not what we need; and 

Three : The information we need is not available. 

When these hearings were initially announced, in the June 10 
Congressional Record, I listed 12 specific questions on which testi- 
mony is invited. I am asking the staff to insert them at this point 
in the record. 

[The Congressional Record excerpt referred to follows :] 


[From the Congressional Record, Senate — June 10, 1975] 

Here are some of the questions to which we seelc answers : 

First. What are the "information gaps" which hamper regulatory agencies 
and users of tlie information they collect? 

Second. Is information that is publicly available — although perhaps obtain- 
able only by going to many sources at considerable expense — not conveniently 
available to State regulatory agencies and to the public from the Federal 
agency which collects it? 

Third. Is the information available only on an aggregated industry basis? 
If so, how can an agency and the users ascertain that aggregates and averages 
are correct if they do not see individual company data on which the aggregate 
information is based? 

Fourth. To what extent is reported data verified by the agency which col- 
lects it? 

Fifth. How often is basic data regarding company operations, management, 
assets, liabilities, capitalization, and control collected? Should information 
now collected only as part of occasional "benchmark surveys" be available on 
a more regular basis? 

Sixth. What is the regulatory lag between the time information is attainable 
within the firm making the report and the time it is available to the agency 
and those parties to whom the agency makes it accessible? 

Seventh. What is the regulatory lag between the time that agencies receive 
reports and the time that statistical compilations are published? What are the 
reasons for delay? 

Eighth. Should agencies provide more analysis and evaluation of statistical 
data than are now available? 

Ninth. What do the agencies do to help guide the public to information in 
their files? How can those procedures — or publications — be improved? Is in- 
accurate or outdated data flagged? 

Tenth. What charges are levied by the agencies for reproduction of reports? 
What are the reasons for the disparity of charges? 

Eleventh. Prior to enactment of the Hart amendment to the Alaska Pipe- 
line Act, regulatory agency questionnaires to 10 or more firms were subject to 
veto by the Oflice of Management and Budget. Now they are subject to review 
by the General Accounting OflSce. Is the revised procedure working out satis- 
factorily from the viewpoint of reporting companies, the agencies, and the 
using public? Should data sought by Congress from executive departments 
whose questionnaires are not approved by the executive branch be collected 
by independent regulatory agencies? 

Twelfth. What progress is being made to reduce business burden — while 
maintaining or improving the accuracy, adequacy, timeliness, and availability 
of report.^ — ^l)y interagency development of uniform reporting requirements 
regarding company operations, management, assets, liabilities, capitalization, 
and control? 

Senator Metcalf. These questions have been provided to wit- 
nesses and are also available at the press table. 

I am also submitting for the hearino: record a letter from John 
Gradv, chairman of the Tnterao-ency Eefrulatory Accountants Com- 
mittee— IRAC. 

This jrroup consists of the chief accountino: and financial officers of 
19 Federal agencies which prescribe reofulations on accountino; and 
reportinji; of financial data. 

This letter provides initial comiuents of the IRAC working group 
on the 12 questions posed by the subcommittee. Later on in these 
hearings we will invite testimony from officials of some of the 
agencies represented in the TRAC group. 

[The letter referred to follows:] 


Snterjstate Commerce CommiJisiion 

(Hasbington, B.C. 20423 
June 23, 1975 

Honorable Lee Metcalf 
United States Senate 
Washington, D. C. 20510 

Dear Senator Metcalf: 

As Chairman of the Interagency Regulatory Accountants Committee 
(IRAC), I want to thank you for this opportunity to express the 
Committee's thoughts on information management. 

IRAC is made up of the chief accounting and financial officers of 
19 Federal government agencies which prescribe regulations on accounting 
and reporting of financial data. Included in the membership are 
representatives of eight independent regulatory commissions; the 
Civil Aeronautics Board, the Federal Communications Commission, the 
Federal Maritime Commission, the Federal Power Commission, the Federal 
Trade Commission, the Interstate Commerce Commission, the Nuclear 
Regulatory Commission, and the Securities and Exchange Commission. 

The purpose of the Committee is to present a forum for the interchange 
of ideas and discussion of common problems within the regulatory area. 

The following responses to your questions on information management 
represent the consensus of the members of the IRAC committee and should 
not be interpreted to represent the official position of any independent 
regulatory agency or group of agencies. 

1. Many of the items which we would classify as "information gaps" 
relate to our current inability to obtain, analyze and make available 
meaningful data on a timely basis. 

Currently, one agency may collect and process data that is used by 
other agencies. While the information is eventually available, the 
current collection and processing methods do not insure that the final 
information product is timely. 

Other "gaps" are incomplete identification and indexing of available 
information and the limited accessibility of available information outside 
the agencies headquarters area. 

Honorable Lee Metcalf 

These problems can be corrected somewhat through the development 
and implementation of electronic data processing information systems. 
The individual agencies are attempting to cope with this problem. 
A major effort to close the "information gaps," whether on an individual 
agency basis or on an interagency basis, would initially require some 
additional resources. 

2. In general, information collected by the independent regulatory 
agencies is readily available to state regulatory agencies and the 
public. Most data is readily accessible via publications, public 
reference rooms, and data tapes at little or no cost. 

A state agency with responsibilities in the areas of transportation, 
power, and communications would have to obtain data from three individual 
Federal agencies. While some information is coordinated through the 
National Association of Regulatory Utility Commissioners (NARUC), a 
vast majority of the data is available only from the individual agency. 

3. Most information is available both on an individual and 
aggregated industry basis. Aggregated data can be readily verified 
from individual reports, the supporting data base available on magnetic 
tape, and comparison with industry sources. 

4. The statistical information is subject to computer verification 
through selected tolerance and consistency tests, balancing and 

cross checking routines. Significant errors are corrected. Records of 
reporting business enterprises are audited by agency auditors. 

In most agencies the frequency of audits is determined by the 
type and size of the reporting company. 

5. Most of the basic data is collected on an annual basis. Certain 
segments, primarily financial and operational data, are collected on 

a quarterly basis. "Benchmark surveys" usually extend into the data 

base where the data is pertinent to continuing regulatory responsibilities. 

6. There is usually a regulatory lag of one month on the filing 
of quarterly reports and three months on annual reports. Upon filing 
with the agency the data generally becomes immediately accessible to 
the public on an individual company basis. 

7. As noted in item 1, there is a regulatory lag in making aggregated 
data available. The lag varies from 15-20 days for monthly and quarterly 
reports to one year for major annual publications. The reasons for the 
delay are many. 

2 - 

Honorable Lee Metcalf 

Primary reasons include substantial purification procedures, lack 
of adequate computer facilities and substantial printing time required 
by the Government Printing Office. Other problems are delinquent 
filings of data, volume of data processed at one time and continually 
changing data base. 

8. Ideally, agencies should do more analysis and evaluation of 
statistical data. This deficiency is being addressed. However, any 
substantial increase in analytical work would again require resources 
that are not presently available. 

9. Most agencies issue press releases regarding special publications, 
provide a reference room for public use and prepare replies to individual 
inquiries regarding availability of information. As noted in item 1, 
more effort must be made in identifying, indexing and cataloging 
available information, and to permit the user to know what is available 
and in what type of format. 

Reports and related publications are usually reviewed and updated 
on an annual busis. One agency is currently planning a "user" survey 
to determine if its publications meets the needs of users. This should 
be an ongoing project for all "collectors of data" in assuring that 
the information requested in the past is meaningful. 

10. For the most part, publications are offered to the public 
through the Government Printing Office at published rates. The 
public may avail itself of information in the public reference rooms 
and produce copies on a commercial copier for 25(t per page. 

Requests which involve computer processing are billed at nominal 
operating costs. The major reason for any disparity of charges is 
the size or volume of the report or publication. A lOO-page report 
will cost more than a 20-page report and three hours of computer time 
will cost more than one hour. 

11. Generally, the answer is^O'. The agencies had a better working 
relationship with the Office of Management and Budget and were able to 
obtain a preliminary review subject to final approval by the agency. 
The General Accounting Office refuses to review any proposed form or 
revision until approved by order of the agency. 

This policy builds in an automatic 45-day time lag before any 
questionnaire or form can be used by the issuing agency. In our 
judgment, the independent regulatory agencies established as an arm of 
Congress should collect any information sought by Congress which falls 
within the scope of the agencies authorized responsibilities. 

- 3 

Honorable Lee Metcalf 

Further, the agencies should have the ability to respond quickly 
in collecting information on problem areas that arise so that action 
can be taken if needed. 

12. Because of the independent nature of the regulatory agencies, 
little has been done in a joint effort. IRAC is in the process of 
developing standard balance sheets and income statements which will 
provide information leading to uniformity of data collection in those 

The independent agencies have worked together when they have joint 
jurisdiction. The Interstate Commerce Commission and the Federal 
Maritime Commission use the same accounting system and reports for 
maritime carriers. The Civil Aeronautics Board and the Interstate 
Commerce Commission use the same accounting system and reports for 
freight forwarders using both ground and air transportation. 

Other areas which you may wish to consider in your review are: 

— What is the impact of the 1974 Privacy Act? Some guidelines 
must be established that will permit the agencies to obtain and 
disseminate the most useful information without harm to the individual. 
Also, will the restrictions in this Act limit the agencies' ability 
to deal with problems? 

-- What are the agencies' problems that preclude them from 
obtaining and disseminating certain data? Burden on reporting 
companies. Cost of obtaining data and cost of publishing data for a 
small number of users. 

We hope our comments will be helpful in your investigation. 
Please feel free to call upon us if the Committee can be of further 

Sincerely yours. 


/John A. Grady 
Chairman, IRAC 

4 - 

Senator Metcalf. Our first witness this mornino- is an old and 
valued friend who has previously provided valuable counsel to this 
and other conoTossional committees — Jake dayman, secretary-treas- 
urer of the Industrial Union Department, AFL-CIO. 

The last time you and I were tofjether, Mv. dayman, we were 
receivinn^ an award from the Consumers Federation of America 
downtown. So I am deliofhted to have you here again to testify as 
you have before with your usual wisdom and we will try to follow 
your guidance. 


Mr. Clayman. Thank you, Mr. Chairman. 

I have with me Richard Prosten, to my left, director of our re- 
search department; Brian Turner, on mv right, who is a member 
of that staff. 

Mr. Chairman. I am going to start out by reading the testimony 
I have here, because if I don't, my associates are going to be very 
greatly disturbed and I don't want to disturb them. However, I am 
aware of the time limitations and I may perhaps not read it all. If 
so, I trust that the entire statement will be placed in the record. 

Essentially Ave have a most interesting problem here, Avith our 
great Government and its inventive people. We haAT been the pro- 
vider of the recording technology, information storing, data process- 
ing for the Avhole Avorld. Yet, Avith all this enormous capacity for 
collecting, for receiving, for cataloging, for storing information, 
quite obviously Ave do a relatively poor job in areas that have enor- 
mous import for the people of the country and in our particular 
case Ave speak for the Avorkers of the country. 

While this seems to be an academic issue to many people, un- 
fortunately, as the chairman knoAvs, this is far beyond academia. 
.\jk1 this has vital bearing; the information that your committee and 
that you have been seeking over the years has vital bearing on the 
health of our society. 

As Ave understand it, the current hearings are to assess the suffi- 
ciency of data on Avhich government regulatory decisions are based, 
and hoAv the accuracy, adequacy, and availability of this data might 
be improved. We appreciate this chance to appear before your 
subcommittee and share with you our feelings on the inadequacies 
of information flowing from governmental agencies. 

We realize that the Federal regulatory system is currently under 
great attack. It would appear that the President of the "United 
States is fashioning a campaign to emasculate much of the good 
that these agencies do accomplish. Clearly, there are some instances 
of overregulation. But all too frequently, there is too little regulation. 

This situation flows from the fact that the administration has 
stacked these agencies Avith people Avhose interests seem to lie more 
Avith the entities they are supposed to regulate than Avith the public 
they are supposed to protect. 

We wish to call to your attention a variety of situations in which 
we feel the oovernment's performance in the field of data ^atherino: 
is totally inadequate. Since the executive departments have not seen 
fit to compile the sorts of data that we feel are needed, it seems 
appropriate to ask that the reo;ulatory agencies try their hand at it. 

Primarily we are concerned with the lack of hard data in regard 
to employment. We do not mean the sorts of a,2:o;reo;ate data about 
how many people are workinc; and how many people are collecting; 
unemployment checks which the Department of Labor issues. Rather 
we need fi<]:ures indicatino- how and why people have become un- 
employed; where work opjiortunities are diminishinp; or vanishino;; 
what industries are sufferino- or are likely to suffer substantial non- 
cyclical unemployment; and various offshoots of such approaches to 

It seems to us that economic data collection in this country is 
quite unresponsive to some of the very obvious and most pressino; 
needs of our citizens. In many cases where important data is col- 
lected, it is terribly out of date by the time it is put into the hands 
of those who need it to shape national policies. 

If we review the economic issues that have achieved crisis status 
in this country over the last decade or so, we find that in an amaz- 
incr number of cases, we were told that nobody knows the true 
seriousness of the problem or how to fashion solutions because there 
was not sufficient information. 

Unless this be interpreted as an overstatement, all of us, at least 
this side of the table, I am sure on your side of the table, can testify 
to any number of situations where the people who should know 
are forced to the corner and admit they simply don't know because 
they haven't been directed or authorized or allowed to gain the 
necessary information. 

Clearly, it would be unreasonable for us to expect the immediate 
availability of data concerning every aspect of every contingency 
that may occur in or to a country as vast and economically complex 
as ours. But we feel there are certain areas which cry out for 
attention. We don't really care which agency or department does 
the data collection, but we do care that it be collected, analyzed 
and quickly made available to Congress and the public. 

The sorts of data with which we are most concerned — because 
they are so totally unavailable — are those that would give us a 
handle on problems— current and potential — that affect jobs and 

One example of what we're talking about, and which the chair- 
man of the committee obviously is familiar with, was quite notice- 
able during the fuel crisis. Despite the elaborate budgets of a host 
of agencies and departments that collect data, nobody could find out 
how many people were put out of work, or forced onto reduced 
workweeks, as a result of this situation. The closest that we had to 
an answer was based on what new applicants for unemployment 
insurance indicated on their application as the reason they thouirht 
they were now unemployed. This approach was not only unscien- 
tific but unacceptable as a method of understanding the effects of 
then current economic developments. It was based on the poten- 


tially subject perceptions of insurance applicants. Of course, the 
perceptions of those who were inelio-ible for unemployment insurance 
were not counted at all. There was a vast <rroup of people ineligible 
to collect unemployment insurance, and their attitudes, their per- 
ceptions, for what they were woi'th, were not tapped. 

Parenthetically, it was equally disturbing that seemingly nobody, 
in or out of government, could tell us how much petroleum was 
available — either on top of or beneath the ground. 

Senator Metcalf. That goes for natural gas, or coal, or any other 
natural resources. 

Mr. Clatman. Exactly, Mr. Chairman. I recall and you recall, 
we still have it. We have all kinds of charges about undersupplies, 
oversupplies. conspiracies, price-fixing. All of these arise out of the 
obvious fact that our government just doesn't know what kind of oil 
reserves we have, indeed, what kind of current inventory that could 
be available quickly. And for a country as complex as ours and so 
reliant upon energy, to my simple reasoning, this becomes almost 
sheer tragedy. And the pity is that this so far has not been per- 
ceived, as I see it, in our current administration. 

But the jobs question bothered us the most, for it reminds us of 
just how inadequate and anemic our society's base of knowledge 
in this area really is. It reminded us that for many years the labor 
movement has been pleading for that kind of data — data that would 
enable planners and policymakers to more successfully factor the 
jobs and thus the welfare of working people into their actions and 

The issue of jobs — and job loss, job creation and the like — comes 
up again and again as this country becomes aware of the growing 
impact of multinational firms on our economy. For a number of 
years now Ave have felt that American jobs were being shipped 
abroad at an alarming rate. 

The multinational enterprises and their friends insist that we are 
wrong — on the assumption that we don't have the sufficient data in 
regard to their operations; they claim that, in fact, this process has 
created jobs in our economy. 

If I may digress, and yet it is very significant, we have been say- 
ing, our economists have been saying, that from the period of 1966 
to 1972. there has been a loss of 1 million American jobs because of 
increasing imports, and a substantial amount of these imports com- 
ing from American multinationals producing abroad. If this is so, 
then this is a very serious allegation that goes to the core of the 
stability and the future of our economy, because, without jobs, 
America is nothing. 

The multinationals have been saying most vehemently that this 
is a canard, and the fact it, and I say this earnestly, that we can- 
not say with exactness, scientific exactness, that there are a million 
jobs that were lost. The employers obviously won't say this, and 
the Government can't say this because it doesn't know. Let's look at 
this issue, if I may suggest, for a minute. If it is true that the picture 
we have presented is sound, then we have got a very basic, funda- 
mental problem that needs the attention of Congress and the admin- 
istration quickly. Yet, there we are in a debater's stance, employers 


obviously sayin<r the usual, aud we are sayiuo- those thiuofs that are 
closest to our hearts and our mind; and our economists tell us of the 
facts, with neither one of us truly prepared to, with exactness, urg:e 
that our factual base is the actual base. 

And the one party in our society that essentially has that kind of 
responsibility to protect the public interests is unable to answer the 
debaters' charoes because it does not — indeed, as you will see very 
quickly from what I am about to say — it does not want to be privy 
to these facts, I assume, conceivably, because it may be politically 
embarrassing. This is a horrendous thoufjht. 

We still think we're ri^ht, but despite intense interest in the 
subject on the part of many sectors, there is no body of date that 
can be used to prove or disprove our alle^rations. 

Collecting reliable information and subsequently pursuino; mean- 
inofnl economic analysis on foreifjn direct investment — both inward 
and outward — is essential to the economic well-being of this country. 
The American people and the American Congress have a right to 
this information. 

Overseas production by the controlled foreign affiliates of U.S. 
multinational firms is now 31/2 times larger than either U.S. imports 
or exports; it now totals roughly $350 billion per year. Projecting 
from the most recent Commerce Department estimates — made for 
1970 — U.S. multinationals' overseas employment should now be over 
51/t million — just over the average unemployment in the United 
States during'calendar year 1974. Is it 51/2 million? Is it 500,000? Is 
it 11/^ million. Is it 2 million? Is it important for our national 
security and our understanding to know what that figure is? Is it 
a meaningful figure? We think it is desperately meaningful. Yet, I 
gather that our Government can't tell us that with exactness. And 
that runs throughout the economy, particularly as it applies to multi- 
national corporations. 

So, obviously, Mr. Chairman, both of us. you on your side and we 
on this side, are not talking about a triviality. We are not talking 
about a theory. We are not talking about an academic issue. We are 
talking about the life of our economy and its continued upbeat. 

Let me return to my prepared testimony now, where there is a 
bit of a horror story that has unfolded. I don't want to be in the 
position of charging bad faith, desperate motivations, but let this 
recounting speak for itself. 

In this rapidly changing situation, wliere multinationals expand 
abroad as the domestic economy languishes. Congress has a duty to 
see that all necessary information is collected and that the economic 
analyses that depend on these statistics are responsibly carried out. 
Study after study in this area is forced to conclude with an apology 
for tiie tentativeness of its results, because the underlying economic 
statistics are too weak to provide solid analytical conclusions. We 
won't take up your time listing the various individuals and organi- 
zations who have lamented our Governmenfs irresponsibility in this 
area, but there are many respected experts who would certainly 
welcome more responsible data gathering and analysis. 

On outward direct investment by U.S. multinationals — an issue 
of great concern to us and, we believe, to the Nation — the admin- 


istration's recent record on datii o-atlierino; lias been less than laucl- 
able. In this refrard, we Avonld like to brino; to the attention of this 
subcommittee the dismal history of what happened when a respon- 
sible ai^ency of the Department" of Commerce attempted to improve 
its data collection on U.S.-based multinational firms. 

The Bureau of Economic Analysis, Dejiartment of Commerce, 
has responsibility for p;atherino: and asscmblino; primary economic 
data on the foreiofn operations of U.S. multinational firms. Their 
last benchmark survey was conducted in 1966, and they publish 
annual updated estimates on the basis of voluntary survey forms 
sent out to a small sample of the known universe of American 
multinational corporations. 

As the multinationals' overseas activities increased, the Bureau 
of Economic Analysis recoo;nized that their previous bench mark 
census had become hopelessly outdated, as of course it was only 9 
years ao;o, and that the ranfje of information covered in the last 
bench mark was seriously inadequate to deal with urgent analytic 
and policy needs. 

In late" 1972, the specialists at BE A beo;an their own preliminary 
analysis of topics that should be covered in such a study, and they 
devised draft survey forms to be sent out to U.S. multinational 
parent corporations and their foreip:n affiliates. 

When this process was completed, the proposed forms were sub- 
mitted for approval to a Cabinet-level interajrency clearino- commit- 
tee, the Xational Advisory Committee on International Monetary 
and Financial Policy — NAC — composed of representatives from 
Treasury, Commerce, the Federal Reserve Board, the Export-Im- 
port Bank, and the Department of State. The proposed bench 
mark survey was handled at the Xational Advisory Committee by 
a workino; committee chaired by James Griffin of Treasury. 

The proposed BEA survey would have expanded the scope of the 
data collected in 1966 and in subsequent sample surveys. For the 
first time they would have asked for detailed information on employ- 
ment, skill levels, and employee compensation at home and abroad: 
on the cost and location of research and development activities; on 
production by product line; on taxes paid into different jurisdictions 
at home and abroad; on transactions between parent and affiliate; 
and on the treatment of domestic and forei^jn operations in the in- 
come statement of the parent firm. 

This was not. in our view, an exhaustive list of what we needed 
to know about U.S. multinationals. It would have been far inferior 
to data presently collected on comparable domestic activities. It 
would, however, have represented a sio;nificant improvement over the 
data on multinationals presently gathered by the Federal Govern- 
ment. It would have fulfilled needs recoofnized by all users of data on 
multinational corporations, and the BEA understood it as necessary 
for responsible analysis and rational policy evaluation. 

If I may, for just a moment, I would like to enter a word of 
hurrah and cono;ratulations for the so-called bureaucrats, people 
who do this kind of work from day to day, not limited in their 
original conceptions and perceptions by political considerations; they 
came up with what seemed to be a wholesome beo;inningf in a rela- 
tively unplowed field. 


Senator Metcalf. JNIr. dayman, once upon ca time I served on an 
appellate court. When somebody wrote an opinion, I said I concur, 
and may I concur in the hurrah that you have expressed? 

JNIr. Claymax. These are the fellows that work down in the ditches 
and normally don't get the public visibility, and, more often than 
not, at least* in my judgment, they are far in advance of those who 
are more visible and more obvious to the public. It is a pity that it 
is that way, but I think it is one of the facts of political life. Cer- 
tainly, it is in the United States. Conceivably, it may be worldwide. 

The reception given to this vitally needed expansion of our funda- 
mental data base on multinational corporations was startlingly nega- 
tive, although, I must say, predictable. The NAC rejected every item 
on the survey form that was not strictly related to balance-of-pay- 
ments accounting — on the interpretation that the Bretton-Woods 
enabling legislation allows only balance-of-payments reporting. We 
call this a strange interpretation because even the weak analytic 
data that had been collected in 1966 — without any challenge as to 
its legality — was now ruled out of order. Xo one in those days ques- 
tioned the legality of the questionnaires, the information that was 
sought and obtained by the Bretton-Woods enabling legislation. That 
is a modern phenomenon. Everything having to do with research and 
development, with the breakdown of production figures, with em- 
ployment, skill levels and compensation, and even with trade between 
the" multinational parent and its foreign affiliates — all that and still 
more was cut out of the proposed survey by this Cabinet-level inter- 
agency committee, which made the questionnaire anemic and almost 
worthless — not altogether worthless, but almost worthless, to dis- 
cover the kind of information that a government needs and the 
public needs and Congress needs to make its interpretations of valid 
legislation for the future. 

We find it hard to believe that such obstructive action, against the 
sound initiative of a highly professional Federal agency, could rep- 
resent anything other than high administration policy. 

Somebody up there doesn't want to know — or doesn't want the 
public and the Congress to know — the true facts about the multi- 
national corporations and their effects on the domestic economy. 

I wish I could come to a different conclusion because this is a 
harsh observation that I made. But I don't know, as T search my own 
mind, I don't know what other interpretation that reasonable people 
looking at this can place upon that action. 

In our judginent, this is a scandalous situation which cannot be 
allowed to endure. 

We think the record of failure to responsibly provide the public 
and the Congress with accurate, up-to-date information on multi- 
national investment speaks for itself. 

At issue here is our ability to analyze the makeup and operation 
of the huge multinational sector of the U.S. economy which, to 
date, has been kept hidden from responsible economic and social 

The Nixon-Ford administration has blocked attempts at monitor- 
ing the activities of IT. S. -based global firms. 

The multinational sector is too large and potentially too damag- 


ing a part of tlio American economy to remain behind the veils of 
corporate confidentiality. 

If rational policies that can strengthen the domestic economy are 
to be implemented, we must have reliable data on the multinational 
sector and its signifiance in our economy. We must place particular 
emphasis on the employment aspects of the question. 

But let us return to what is seen as an essentially domestic issue. 

In the late 1960's, this Nation belatedly began to look into environ- 
mental quality — both on and off the job. From that time until this 
very day — and. I guess it will be true for years to come — spokesmen 
for industry have told everybody they could find that even modest 
environmental standards would mean the closing of many industrial 
facilities and the loss of untold thousands of jobs. 

Despite industry's dire predictions, we have been unable to identify 
any significant number of plant closings in which safety, health, or 
enviromuental requirements were even alleged as reasons for the 
action. And in those few cases where such causation was cited, we 
were rarely able to verify the claim. 

We believe that safety, health, and environmental questions will 
be with us for many years to come. We think that it is in the na- 
tional interest to study, as completely as possible, the impact to 
date, as well as the potential future implications of such legislation 
and standard setting on jobs and employment. 

Only with solid information in hand will we be able to look at 
these serious problems without being subjected to unverifiable po- 

We have given you a few examples of areas where job-related 
data is needed and where presently available statistics are totally 
inadequate for national policy planning or response. 

Senator ^NfETCALF. Mr. dayman, I think your statement is so 
thoughtful and perceptive that I hope you don't leave anything out 
which you want to talk about. 

I think, though, as an old-time friend you will excuse me a minute, 
if I may step out and meet for the first time Congressman Max 
Baucus' parents who have just stepped into the room in the back. 
I will be back again in a couple of minutes. 

Mr. Clatmax. I think that is very thoughtful and perceptive of 
you. So I accept your observation, sir. I shall sit here quietly. 

Senator Metcai.f. Just for a couple of minutes. 

Thank you so much. You are always so helpful and so under- 

[Brief recess.] 

Senator Metcalf. Thank you very much. 

My apology to you for this interruption. Thank you very much. 

Mr. CijAtmax. This inadequacy is not a recent discovery for us. 
For many years we have sensed that the absence of data along these 
lines was painfully apparent. We searched every conceivable agency, 
bureau, department, and what have you to try and find out what was 
happening to the jobs of our members and in other sectors of the 
economy as well. We were unable to locate any source that could 
tell us such things as: 

What sorts of industries are experiencing employment declines 
and why? 


Have there been significant shifts in the traditional geographic 
patterns of plant installations of given industries or companies— 
and why? 

What identifiable patterns tended to surround the curtailment or 
closing of facilities? 

To be sure, we had some hypotheses about such situations. We 
assumed that the conglomeration of the U.S. economy during the 
1960's was destructive of work opportunities. We assumed that the 
tax incentives supplied by certain of the States and the antiunion 
attitudes that frequently characterize these same areas were respon- 
sible for the destruction of historical employment opportunities. 

We also wondered about the increasing "multinationalization" of 
the U.S. economy. We wondered how many domestic employment 
opportunities were being lost to a combination of the tax incentives 
for job exportation provided by both our Government and host 
governments and the availability in some countries of heavily con- 
trolled labor forces. 

At any rate, in our own modest way we undertook to compile a 
listing of incidents of plant closings and curtailments. We sought 
reports from unions affiliated with our organization, combined 
financial journals and other periodicals and cadged information from 
wherever we could. 

Here we are, not being able to find out from our Government 
these obvious, fundamental, economic facts and starting in our own 
feeble way with our relatively small resources as compared to gov- 
ernment to try to find out for ourselves. 

Such an approach as ours, obviously, is not totally scientific and 
we recognize that it is far from perfect. But as far as we know, it 
is the only ball game in town. 

One hunk of a labor force is taking a look at this enormously fun- 
damental issue because we can't find it anywhere in our Government. 

National financial analysts, committees of Congress and various 
Government agencies frequently come to us because they are inter- 
ested in exploring one or more of the areas addressed in our survey. 

While we are always pleased to share the results of our work with 
other investigators, we do so with great embarrassment about the 
inadequacy of our data. Because of the makeshift ways in which 
we collect it, we cannot be sure of how representative it is of oc- 
currences in the economy at large, nor can we be sure that the 
sources we have used are correctly reporting the information that 
we plagiarize from them. 

As of the beginning of 1975, our system had been in operation for 
4 years, and I confess a feeble system. 

In that time span we have noted that 1,701 situations in which 
jobs were permanently lost. Almost 1,300 of these cases represented 
permanent plant closings, while another 400 represented permanent 

None of these instances involved short term layoffs caused by 
economic fluctuations or other temporary events. 

We did not receive complete information on every reported situa- 
tion but where we did, we discovered the following: 

Less than 3 percent of the cases reflected claims tTiat health, safety 
or environmental controls caused the action. 


Approximately 25 percent of tlie closino;s and curtailments were 
related to the inipact of foreioii competition and they accounted for 
some 32 percent of all jobs lost. 

The average foreign competition related closings involved 3Y9 
jobs lost and the average such permanent curtailment involved 559 
people. That is each particular shop involved these numbers. 

Another major reason for closings involved domestic relocations, 
most typically to low wages, less urbanized areas. In these cases, an 
average of 262 jobs were lost in closings and 298 in permanent 

When we expand the information covering cases where we have 
complete data to all of the situations of which we are aware, we 
find that we can account for a loss of almost 500,000 jobs, of which 
roughly 150,000 can be related to the pressure of foreign competition. 

As I said earlier, we are aware of the very great limitation of this 
data, but at the same time we are frightened by what it seems to 

Is it not the sort of data that this Congress and this Government 
should cause to be collected with precision so that it might be at hand 
as the important economic issues of the day are considered? 

Perhaps our data is not representative of what is going on in the 
economy at large, but only a well-funded and skillfully implemented 
study will be able to resolve that question. 

Mr. Chairman, members of the committee, we realize that we may 
have deviated a bit from the precise topic of these hearings, but feel 
that it is important to get on the record without concern in these 

These items strike us as ones that contain information which 
investors would need in order to deal in the stock market more 
effectively. Perhaps it is information which could be most readily 
collected by an agency such as the SEC. 

We are not really too particular about who does the work, al- 
though we would want to make sure that it was done competently. 
As a Nation we must put ourselves in the position to make rational 
economic policy on the basis of information rather than guesses. We 
must develop data that Avill alert us to potential employment prob- 
lems before they become fatal ailments. 

The data collection advances by the independent regulatory agen- 
cies — empowered by the Hart amendment to the Alaska Pipeline Act 
and outlined in the model reporting requirements — are steps toward 
more comprehensive reform of Federal data collection. 

In the not so distant future,, piecemeal reforms in Federal data 
collection will have to give way to a more systematic, coordinated 

To date, this lack of coordination in Federal data collection has 
led to such things as: Incompatible information series; major gaps 
in the information that is collected; and inefficient and artificial 
barriers governing exchanges of collected information between 

"While information gathering has increased in scope, the different 
agencies too often gather their data on incompatible definitional 
bases. This makes it difficult for analysts, both in and out of the 
Government, to compare related sets of data. 


For instance, our information on production, sales, employment, 
and wages, is collected by industry according to the Standard In- 
dustrial Classification (SIC). But our import and export data are 
gathered according to the substantially dilTerent categories of the 
Tariff Schedule of the United States (TSUS). 

As a result, the depth of important penetration or export-related 
employment are often impossible to calculate. 

In addition to these definitional inconsistencies, there are impor- 
tant areas where data are inadequate or not collected at all. We 
have mentioned a few of these this morning. 

Alongside the missing information and the incompatible statistics, 
we see a third problem area: A lack of imagination in using existing 
data to derive additional needed data. One area that comes to mind 
immediately involves the foreign operations of U.S. global corpora- 
tions and their impact on domestic production and employment. 

One branch of the Federal Government, an agency of the Com- 
merce Department, has more or less adequate knowledge of the 
identity of U.S. multinational corporations; this information is 
stored on computer tape. But the Commerce Department has no 
current information on these firms' employment. 

The Labor Department, on the other hand, through the Bureau 
of Labor Statistics, has records of domestic employment patterns for 
the larger individual firms; and these records, too, are stored on 
computer tape. 

It would be a relatively simple matter to run these two sets of in- 
formation against each other and thus discover at least the domestic 
employment performance of U.S. -based multinational corporations. 
Such a procedure would be inexpensive. 

It would require no change in present reporting requirements, nor 
would it threaten corporate confidentiality in any way. Yet, under 
present arrangements, these two tapes cannot be brought together, 
and these important questions remain unanswered. 

A few such information gaps can be closed quickly by utilizing 
currently gathered data. But in the longer run, our whole system of 
data collection will require streamlining. By eliminating unneces- 
sarily overlapping and duplicative reporting, we could have more 
and better information, while significantly reducing the costs of data 
collection and reporting. 

Mutually consistent data bases must be established, and existing 
information gaps must be closed, especially with regard to energy 
and the overseas operations of U.S. multinational corporations. 

We recognize, of course, that such an overhaul of the Federal 
data gathering system is a longterm project. Yet, the Congress can 
take some steps toward that future consolidation and streamlining 
without delay. 

A first step would be an assessment of the present diverse pro- 
grams of Federal data gathering. What questions are being asked, 
and by which agencies? What are the rules governing interagency 
exchanges of data? 

A comprehensive survey of present data collection will be essen- 
tial for arriving at a more coherent, less costlv svstem for the future. 


Such a necessary preliminary study could well be carried out by 
the GAO or the Congressional Kesearch Service at the request of 
this subcommittee. 

Parallel to this exhaustive determination of what is now happen- 
ing in Federal data collection, future reforms will require the careful 
consideration of alternative approaches to more comprehensive and 
coordinated data collection. There are many questions to be ad- 
dressed '. 

What are the most promising conceptual structures for organizing 
industrv data on a common basis? 

"Wliat is the range of possibilities for facilitating interagency ex- 
changes of information? 

How do we establish standards of confidentiality and protect 
against their abuse in such a comprehensive data system ? 

As the Congress implements the many needed reforms of our in- 
efficient data gathering system, these questions should be systemat- 
icallv explored and answered. 

In closing, I would like to endorse an idea that appears in the 
testimony of Dr. Abraham Briloff before the Senate Banking Com- 
mittee on July 11, 1975. 

Dr. Briloff, a certified public accountant and professor of account- 
ancy at the City University of New York's Baruch College, urged 
the" creation of a Corporate Accountability Commission to assume 
the overarching responsibility of identifying the total informational 
needs of our society * * * regarding our corporate enterprise and to 
see how this information can be best accumulated, digested, and 
disseminated. He stated: 

Failing such a unitary trust I can see the present segmented, limited scope 
and responsibility as producing intensified conflicts within Government, and 
an inadequate and inefficient response to the fair informational requirements 
of our modern democratic society * * * one which requires the delegation of 
enormous power and responsibility which, in turn, demands a reciprocal 
measure of accountability to those who have thus delegated the power. 

Mr. Chairman, that is our formal statement. Thank you. 

Senator Metcalf. Thank you very much, ^Mr. dayman. 

^VA^ien you sent up the copies of your testimony, Mr. Reinemer and 
Mr. Turner requested and obtained from the Commerce Department 
that proposed multinational survev which you meiitioned in your 
testimonv, one that was blue penciled and red penciled by the Cab- 
inet-level National Advisory Committee. 

I have copies and members of the committee have copies of the 
questionnaires here, and so do y^^u. as I understand. I think it will 
help the subcommittee if you would just highlight some of the cate- 
gories regarding Avhich the Bureau of Economic Analysis sought 
information which would be needed by the Cabinet-level NAC. 

Mr. Clatmax. Let me do that quickly. 

Senator Metcalf. Without objection, this questionnaire will be 
incorporated at this point in the record. 

[Copies of the questionnaires and other pertinent information fol- 



X'd (crossed out) items are those National Advisory 
Committee deleted 

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Offlc, =o.tPlIng, .nd .copunlln, ..okl 



liliil;:;:;""" '"" """'" "^"^ 

R, tr.d., ..c», food .tor.. 



tachlnor,, «o.p> d^lrlcl 0. 


rood .tor.. 



Ho *old 1 t id li 




Polo, o«.«-.ndt>o.rd.lM. 



UrfSint"'"'"' ■""""■'"' 



"4u'l^?"'"°"" ""^ "■-""='"°" 


' l's:lj'.."ind°°r'iu.'?n'd':;.'u.:;'; 




Prinllns. oubll.hln9, .nd IVti Indu.trl.. 


! :r::r""oS:-'- •"""• '"'- 


LT.?;^:! fnTly'SSUf""" 


Q,, ..o^inor,, n.,... 





*.or.*.o... .ndo^ip-onl 


^' ™»!"io;n.'"lo~«';f < > 0. 6 



O.h.. .r.n.por>..lon ..„,p.„, o. 


Holding «,. 

P.lnl, .„«)pr<,duet. 






.,rl«.Uur.l ct,„lc.l. 

^.stJ'ioST-n;"?.^:- ""■ •" 



a-lcl product., "...e. 






lnl.,r..M p.lrol™ r.fln.n, .nd »lr.cllo 



Pr.rol.,™ refining .llhool .Xr.c.ion 



^i^l^rJT*!"""*'' "^ 


W.tch.., clodc., .nd ntoho.... 


'b:.°s;:;i?„; ::;?X,1' ""^ 


""""■ ""*■"• 


°i!:r;o:r"n::'.o!"' ~"'"" 




P.g. 2 





Full o.». of r»r«lgn ifflll.t. 

. •• It vpur. In Il«. 3. For. BE-10«) 






23. E<^Uy Invost-enl In foreign aff 11 latos%Jil ch U.S. 

Roporler Is raportlrtg aa a parent - Equ.ty investment. 
including e<^lty in undistributed earnlnqs since acquis*- 

a. TO T tL WW ^^^"ol'Tt^r^.'lL^ ilt " ' " Mi 

. TOTAL LIABILITIES (Su« of lt«a 26 through 30) 

EQUITY. (Ec^alB Item 25 mlr 

clalma on foreigners. Include, for exanple. 

Foret^/» liabilities - That portion of tots 
pa yables Ig fbrelgnera for Jjcart?. J nclgc 


^ Included .bo.. - 5p«oir,j 

~ t»JH jH(^ ^^^''^CT'erKilti 


<5. U.S. InoMit ta.os - Pro.i.lon for Fod.r.1. 

l"or So'Sf 

'"■ > 




^.=.u..n, .....„.«. ,,..6..... 





th.S foreign 
f.o.b. foreign port] 



"■ ll^UI^H'of;* 3!s""Ri,^«^I'Llll"'-'°£*LT?hf ^ oI'iiIII'tI" 



77. f<»i. t,.»^«. and tot«» 

SITC cod.. 



7*. 4"»llbl. o~d- ..t«-lri,, e,c»t fuds 




„. PMrol^ ..«. P^duc... „al^.n, nawr^ ,„ 




BO. Ch»lcd. 




81, ».«„n^„d,ctr,d.l.n<.»».d.ctr.=.. 




82. Ro.d„u,r.*,d„.ndp.... 





8*. Itetid Mnuf>ctur«5 

67. ea. and 69 



85. Oth- ..,„,.=W.s 



86 «1 oth. 

5 (..clud.n, 551. 


, / 

. ( 

BvCDUNmy ■ ■ 


, / 

. \ 



, v 

. / 


88. Br«U 

mr- «».« 




$ 1 

' ) 



^ / 








' / 



».stern Europe 


. C 

» / 


_*^ Unl.^ K.nado. 



10O H,lh-l.nd. 


101. Bd,lu. .nd Lu.»b<.u,^ 


102 lrd.nd 


1<n. Oafmrk 



105. 5.ltierl.nd 

$ I 

, ) 

, ( 









m. c..t.rne.rop. - 


112 J«..n 


115. Austria i. 


1W N» Zealand 


His. South Afric 


, ) 


















X'd (crossed out) items are those National Advisory 
Committee deleted 

n^ X ;j£,^ c^jU^^ A/AC 

! ^^ Z)je/if:T V/7ff .iLi-ju 

IMPOMTANT - /V-se r<Jd 

. FILUG - > c»«,l.l.j For. 



J.iJJJ JJ...!JJ..Liij.J,J ' ' ' ' 


Q.. ..„,.„ Do 




la«lrl>^ ann 

•?:? I "lir 

a . ifiu. wi. /ii.^ .1, ,^ , 


Q l^isr 9si,':?i"S,™i,iu-„^2.^!i8rii^'." • 

•Mll.t.. Ila. U thr^^t. J 








Other -Specif,, 

.n.ol.ed ,n,hl. .cti.ll/7 




«RT ™«0E CL»SS1FiaTI»IS Booklet for , 

^Hlc'r^t^HrifHlE^"*'^"*'" ' ' 












307 1 


-R.»5PORT.TioN.^oo»juNi am>K^^am, c. 

.,r:^l.^., pnod^C^on - e..„. 

Pe.roleu. tanker operation. 




Lcner.nd leather orod>,=.s 



.,ric„Uur.l scr.ic. 

Glass pnodoe,. 



'o^rc;^^'^;:^^:":"'' "' 




n;?s;rgi";s^»?«?;; -"'"■'•'•s 

,31;, ..t.l product., ferrous 



1 .«.. 



Pri..r, .etal product., no^ferrou. 




-t::^.. „,„.„„.. 


Hetalcn. and .Hippie ^ntainer. 


Electric, ,.., and „nitar,ser.ic.s 




Cutler,, h.nd Ux.1. and h.r* 




„„„„,.„„, d.«.l.ln,„,.,^.ic. 




S'cUlu'Jr. jir""" "'""""' 

i;"^.;"" ""'"' °°""''""°" 


rnS^;::!',-:: """"°" '"° """'"' 


;ro?e^^ •'"-■"•"=-' 


on .„d,..r,.,d „,.!„. 


Electrical good. 










:«:p::2t""*" ■"'""•^' -^ 

Heat produolj 

202, p™*,pl. 

Miscellaneous duraCle good., n.e.c. 



Cnnri .nd pr..«-.«) fruit, and .«,««!., 



Paper and paper product. 


Gr.,„ .111 product. 

352 1 


Drug, and ch^ical. and allied product. 

353 i 


l>pparel. piece good., and notion. 


Olh«- food .-d kindr»J pro*,.!. 

35. J 

Metal-rking machine-, and »»ip.eht 


Grocer,., and related p^duct. 



T.P..O. ..„„,. = ,„r» 

,55 '< 

Special, ..chiner. 


Far^Foduct terial. 



e^rp-i,;"*"''"' •""'■"'' "" 


Pe.roleu. and petroleu. products 


M,sc.ll.n„„s,..-d„r.t,e,ood. c. 




Office, co-^utiog, and accounting -achi 





Retail trade, except food stores 



,59 1 

itechioer,, ccept electrical c. 


250 j 


Furrllurc.™! Fi.tur,. 

Hou.ehold electrical appliance. 


Pulp. p>p,r.„d».,rd.;.l. 


'eJiu'ipient "'"'"'■""' "''"^ 

6M 1 | 


«.SC,U.n»„. »n.^..<<p«,^„r„*,e,s 

"ei;;;eJ?-""°- •- —""""" 



l:s;::^'e,"ind":^'! i'..''rn5':::esL'i"''; f 




Printing, puPli.hing. .nd alli«. industr... 


'"■=^--"-— ■• 


i.::?",;; :;;r;,^tS;t?U""" 


Qectrical .achiner,, n.e.c. 



263 1 


*,tor ..hicle. and e,^,p..nt 


26. i 

Sow, =l«n«..^„d^ toilet good. 


Other tran^ortation .<^,p.eht, n.e.c. 


Holding co.».„ies 

265 ' 







:"— - --" 

T.'i:^';J^.%l,ucV."' ""'■ *"* 

Optical and ophlh.l.ic good. 





Surgica^^.edical. and^deotal 


lnte,r.t«J polnoln,. rofinin, and „lr.«io„ 


rei;rs?;rt;p-j',:rf?fr ■ 


Petrols., refining. ltho„t ,.tr«.ion 


Ptato,raphice«ip,aent and suppl i e. 


^:xx't^?^'"""'- "" 


Watche.. clocks, and .atchcase. 


'^z:'i?ri TeJlLi- "^ 



1 °^:TcSr~?:'.c:'^ ~"""' 1 

56-957 O - 75 - 3 



I I I I I I I \-- I 

^ .Yyi,-p-MiAti^ i}^a-o~f^^ 






^P... ,1 . ,»V[5T»E« « TR.N5.CT10NS BOVE™ P.BENT .ND FOREIGN .m LI ATE - C„.l™ed - - REPORT .LL .WUNT5 IN THOUS.«,S OF U.S. DOEIARS | 

Aooordin, to Pool., of p.ront 


assols oth»- th.n 

5. Transfer of „,_ 
tangiblo prpporly 

8. Othor - Spool f. 






.8. Es..«l.h.„. (IO.U l,*l..,loM of .ff^.l.t. 

A9. '°*«'lf?i;i"r"' ^ '"'"' °' '" '*'" '""""' ' 

51. Fro. U.S. p.rsoo= 

V i^;'-;;^'/;;-;,-;--'. "'--o""" ■"-"'- 

S3. -„sit/;ri: tsTMffTf,l?s!='" """'^' °' '--" -—^ '' -"•« '- - ^^"•""' 

SA. To U.S. p.r,o„ 

55. G.i. (lo„) on ..1= or li*M.,ion („,..U, or ioUll of ,„ „„Uy Inter... 

S6. Cpit.. oonlrlMloo. »t r.^Uin, io i of oapl..l stool, 

57. ..,t.„p (.rlt.*»l 


58. Exeh.n,.r.t, flucto.,. on during th,,.,r 

59. Ot„..-Sp.olf, 





61. N.t Inor.... (door...,) ro.oltlng fro. tn.n..ot,on, ,ith .11 for.lgn.r. 

6.. No. lnor,..e ldocro.,ol nosultin, fro, in.n„otlon. .i.h .11 U 5 por^na 

65. 0,n.r - Spool fy 





' Ibl 


T„ .ithhold 

65. Di.ldond. on oo™on .„d pr.fornod „.oS no. o, o.nnln,., o.olodlng .too. dl.ld.nd. 




67. Royaltios. 11 o.n„ fo... ond oth.r f.o. for th. „., or s.l. of ,nt,n,,01. pnoport. 

68 Ron..l. for tho „.. of t.oglbl. prop.rt. 

"■ :?"o:t;,-::;;:::,:*;tr"""^"'""' """"•"' ""'"'■ ""'""->' - "*"'=" ""'=- 


™— --"• m 





or tho yo.r 





75. Tot.l ...... ., „d of ropof„n, poriod (S,.o .. It„ 90. ool.-n .) 


™- s;o;"?f:.%':iT.s;°i;ir '" ""''" "~- ""- '"' """■• ''-'""" - — -■' -""■" 











► Pan m-FINANCIM SCHEDOIES— » - — ^ - —= - — - -l- »-- '" —■ '— - -• ■•— '- -• "■'-•'"' 1 



Shipped b, the U.S. "0>orl.r(s)f'';''g'^p2.^in 

,s„ ,.„e... •,";:':.:^r™f "rLr.,™!'".r,t:"r.„u, 



"'• ??::,f;::'t/?.:::'i;:''j»;';«"::^i^in";;;;-n:;=;^;L„,. ,», 



1M\_ Food, be..ra9.s, md tobacco 

0- 1 


,.^\,... ...... ........ 


.. ..o..V.od....„.„d,. „,.... 



.. ...>^\ 



.......... .^^.. ....... 



.. „o.d......„a„dV. 



™. „.._..... o...\ 

e.,aodln, 752 


.. ..„.™,.o.., \ 

67, 68 ,pd 69 


.. 0........ \ 

61 through 66 



5,...5.o9 55,. 



165. For r„.l. .Ithoul foriher ..nuf.otur. >S. 


166. Capil.1 .*,p.obt for lo„. or rental b, to otbrr, ^V 

167. Upai ,^ip-on. for .„ 6, .ffUi.te ^\ 

168. 0.b^-Sp.c.f,_ 







Shipped to oth«- U.S. persons | 

k (b, 

Products of 

-■ -f ,i-;r',j^';;i';;:oiV?5.r "- ='""• '-'• '--" / 



1,0. Fo..b..::r::r::::r'°°""' /i 

/™ eode. 



171. Ir^^bl, orud. ..t.ri.U, «,=»> fu.Is / 


172. P.trol™. .™< produc... .,C^i„, n.l„r.I „s / 



175. Ch«i.lcls y^ 



™. .o.„.. ............ .r,./ 



- ---» --'- 7 



„6. Ot.rrtr_.,t,or..„/ 


- ^~ / 

67, 68 .Pd 69 




17. ...ot. X 








• fi^:: 

leoy/oh.rdise export, sblpp^l b, .ffill.t, to nor^Unilrt Slates persons 



5 \ 





' ► PaitlVRNmnCHMS^^^^^^-"^' 

3m% firaNciiiftiioN.. 



mmw %_m& \\\ 

??;3g;33«<:"sro. , 

CD10SIII9N Df wm. \wm 

m"ll,'i2fand"9l] °'°""' 

xt. ir.vr,f '"" °' °"""^ ' 




X'd (crossed out) items are those Bureau of Economic Analysis deleted 

t Ol.Ulon -Bf-UISSel 

IMPOKTANT - /'/-s^ r^^^ 

FILIIIG -i_£aKljlja For. a£-106 It r 

M't». I* .% I.^l>l«. «il Ijfal M».«tM T 




,I Ji, l ,i 

llJJJJl.!JJ..Liij.J,J ' ' ' ' 






r U.9. Dva-ur 

PiPT IV, nNANO^Al^ SCHEDULES for the afl 


In tha osntKt of t|u. 

i;^ I "lii 



£j. jgsi8|^?si,':?i''S,'„?'iii:i-„«ts.'viasf^': 

Pk "•OO'l *>•• "Ol Irolud. P/MI iv.nmiicm, SOIEIIULES portiMIno to .fflll.l, b.uuu 
SdiS" 1 '*'' ' ';',"''■' ■'*••"• '"I "•'"■•• O' »">•• oporitlni r.-«»,t. 

g ....... 

~';.si[.^^' ' '"ji> IJi;iii'.Ii— " "•^"''' "• 



P... , . mENTmUTio^ OF ™e,« .mn.TE mm rented - ce».,™„ | 




' — 

Cod, '•;?'"• 









.,r,„,Uur.,p~duc.i,n- crops 

Petroleu. op.rafons 





Agri^lior.! services 

Glass products 





L""c;it^';;:;d;"r'' ■"' 


Fishir,, h^nlir,. ..d Ir.ppin, 


461 1 

nnrglrSLltlrn '"^'"^"^ 


Pri.,ry ..tal products, ferr.u. 





Transportation, n.e.c. 

555 i 

Priory ,etal product,, no^ferrou. 




Metal can, and shipping container. 



Cutlery, hand tool, and har*„re 


ynoLESALE thaoe 

Olh«-.e..nic.res.nd,et,l .Mir, service 


Metal pitting ^fl.ture^.nd^^^^^^^ 



^ir.'ir;rd^r'*"'° "'"•""■ 



Lu-b^er^and other construction 


^r:.;s;f,~: """"°" '" """"^' 



::;?ifes:'' -'"•"'*■ -" ■ 


0.1 .rd ,., field service. 



Electrical good. 





546 1 

Cort.lruct.or ' 






M„l preducl. 


O.iry product. 

M..cellaneous durable good. =. 



Cored srd preserved frol ts .rd vegetables 



Paper and paper products 


Gr„n .111 product. 

352 1 


Drug, and and alll«l product. 



Apparel, goods, and notion. 


0.h«- food .od klrdred products 

Groceries and related product. 


Tobacco ..ruf.Cure, 

555 j 

Special industry -achinery 


Fare^roduc. ra. ...erial. 


Te.tile.i„ products 

Sjini"*"'^'" """'""•'■'' ■"" 


Petroleu. and petrol-,. p„duet. 


MLcellaneous nondurable good., n.e.c. 




Office, oowting. and aeoounting ..chl 


Retail trade, e.cept food store. 

Lu.O,r ard-od products, cceptFurriture 

559 1 

Machinery e.cept electrical n.e.c. 


Furoilure and fixtures 

563 ' 

Ho hold 1 I cal 1 nces 




Pulp, paper and board .ill. 


%f;L'^r •*''"' ""•"'^ 


Miscellaneous oorverted paper products 


1 Cred.tagencie, other than b.n.s 

"eSipAeif-"- •" "•~"'""°" 


Paperboardcootaioer, ardbo... 






Prirtin,, publishing, and alll«i industries 


' '^Tzv.^fr- ""'"• ^''"- 


l^e^l^iS l-iyftSilfcl'"" 

569 , 

Electrioal -achinery. n.e.c. 


Real estate 



*tor vehicle, and eguip-en. 




Other tranaporftion e^.p.en.. n.e.c. 

285 ■ 

Paints and allied products 

581 ^ 





optical and ophth.l.ic good. 

Ch«.ic.l products, n.e.c. 



Advert.. ing 


?nS™i;i'1id'l; Tf.f "'" 


Integrated petroleu. refining and clr.ction 


tS:','T^iv :M%t.'^ ■ 


Petroleui. refining- ithout extraction 





Hatches, clod... and ..tchcases 


••^Tc:::?^ rii'Li- "^ 



Pubber product, ' 


?:;:Tc:?"n?::=!"' ■"•■""• 



^ .^yy\,yp.-cd^^ 6-/.^^>-y^ 









According to books Of parent 

^ kEAK OF 

3. Exchange of Stock or 


ettlcen, ^de, 


«. E,,.h.„, (totU l,«,d.t.o„| of .ffi.i... 

49. "V'^IrimiiSr"' "' '°"'' °' " ■""'" '"'"■"' ' 

^- £-.?j>,;-'^Hfrit??nstS"=''' """"' °' '»""" ""- " '""" " ■ ^'"•""' 

51. Fro. U.S. p.r.on. 

52 "^''^infmi^^e'"'"" °' '" ■*'" '"'"""' " 

55. SoiSJ/So-: K:n?fT.-,&!='" -'- " '-'-' '-""- " '"■"- '" ' -""""• 

5.. T,U.5. p.„oo. 

55. Gain (.o..) o„ ,.1. or l,*,d,t,on (p.c.i.l or tot.. 1 oE ,r „oity Intor... 

56. Caplt.l a,ntrit„l.ons not rcsoltio, 1„ i sa,.nc. of capital atock 

57. ,ri.»p («.,„) 


a. E.=han,, rate fluctu.tloo d.rl„, Ih. ,.ar 

59. Other -specif, 





62 Net iocreas. Idecreaael re.ultin, f^. trana.ction, with all U S per«,n. 

65. Other - Specif, 

64. Net capita, o„tflo.(e,^it,ool,l 



leceiptsb, parent fro.'.ff ,1 lat, 





65. Oi.idend. or c^on ard preferred stock, paid out of earnings, e.doding stock di.idend. 




66. ,«„est 

67. „o,..ties, license fees, and other fees for the ose or sal. of int.ngiOle property 

"■ L":ca°;d":;;;;es:'"e?r""'"'='"'""' ~""-"' •"•"■"•■ <-""'•'"" <■'■ "*"-i ""—• 

70. Eil. or television tap. rental. 

™"— ™' • 









T5. Total assets a, end of reporting period (S.-e as it™ 90, clo.n ,] 

75. U.S. .erchandise exports shipped to affiliate, f.a.s. U.S. port (Sa.e as it.. 153, colu.n a) 

76. U.S. .erchandise imports fro. affiliate, f.o.b. foreign port (Sa.e as i te. ,69, clo.n .| 

™- ^tL;x:.'nTtr;;ir '" '°^'"" '™- '—■ "" """ ''-"■^' °" "»"-" -■" '"""'■' 




► H:-StH'.S:= Si -aft "=SS=;1:S^ 



► Part IVflNANCIfll IMMlt^ 





Ttjde iccounis ini notes receivable - Net c 

. Sales la>es - Th. . 

.na l.n« h.ld lo, ....I. . - 


93. Otliei current lialillltles - 

9*. Loni'lerm debt (eacludlni current p 




Pin IV-HlimiCI)ll SCHEDOLBi" 





► PartlV-FlNCIfllSCHWSi™ 

. .^T .. .-,«n ,. ^^^ 0. „^. oou.^.,, „..: ,„„... ... ™. ........ ,u. .... „„„..., [ 



' anMEn or CHMGES II nwiciAi pgsiriDi > 

'" xr- 

. "C"«'^f; ™f,^^^„^^°S^°'' • 

"'• ;:L'?s'i«r' '"■°"'"°" '"' '"'"'" '""" "■" ""'" """"' 


"*• 2='.rit'jit:;i ;;5%-«S'.s; ;i ;;f.:".?7:r'!;L""'S """"' '° '""• 


.. S.I.. 1 

k »..,.-„„ 1 


^'' IIISEiSSSSiiS^^ "• 

186. Qo.i^ b.l„„l«,.l .w.l-it» 1B2 plu. 


'"• S'elS^g'w^'oil""'"""" """ *• ""'"^ """" '""' 


201- TOTAL SOURCES (Sm of iim 192 M^ 







'^' i^i^^rfi^fwis^iwiC^'*'**^''' 

'"'• °;s;„;r;;i:"i7'°- l~"Jrr"' '""' '"'"^"- "'""' '""' '*"'"*"' 

''"• W^3ajPii#«?7?rorn7] ^^ 


r"JTr.i;ii.'"ii'«i *"'"" '"°''"' °' "" '"""' '""""' " 


^' '^oSst^i"''"'^"'^"''^'''"'"'"'''''""*'''"""^^^^^ 

CDHHismoii OF mr 


sis:;; °i 

n„„o,a ..,.,.„ .„b. 1 




— ™ 









'"■ '^u:J,:ir\T^\TilTs.T' **" •""' 


tss;s.%s;}"" " "" " *'* '• ""-""•^ 


?15. TOT.L |5„. o 

,,.„..o ....... • 










b. To o.h.. .h.. h..W. 


.. T« l..nk. 

b. To o.».r .h,„ b.n». 


»«"l"9 '.!•"". 




.0,. .„.,.-.«....«, » 







The Assistant Secretary for Economic Affairs 

Washington, D.C. 20230 

'^'B JUlWS 

Honorable Lee Metcalf 
United States Senate 
Washington, D. C. 20510 

Dear Senator Metcalf: 

This is in reply to your letter of July 17, 1975 to George Kruer, 
Chief, International Investment Division, Bureau of Economic 
Analysis, requesting information relating to the clearance of 
BEA's report forms on U.S. direct investment abroad by the 
National Advisory Council on International Monetary and Financial 
Policies (NAC). 

The documents enclosed relate to the review of the form--which 
was sent to your office on Tuesday, July 18, 1975 by Mr. Kruer' s 
office--during the clearance process. Much of the work was 
conducted at meetings of the Working Group or by telephone and 
no detailed records exist. Mr. Kruer' s memorandum to James A. 
Griffin dated July 30, 1974 was prepared after it became apparent 
that the Working Group was going to recommend substantial cuts in 
the form. It was an attempt to justify the form as it was 
originally proposed and to forestall major cuts in the form. The 
attempt was unsuccessful. 

The memorandum of August 13, 1974 from Mr. Griffin to the NAC 
Working Group summarizes the results of the meetings and contains 
a draft of a report to the NAC staff committee chairman, 
Robert Watson. 

The final report was sent by Mr. Griffin to Mr. Watson on 
August 23, 1974, NAC Staff Document 74-24. Since the NAC possesses 
the report you request and labels all its papers "For NAC Use Only," 
copies of the report should be requested directly from the NAC. 

At a subsequent NAC staff meeting, the Working Group was instructed 
to meet again to decide which of the items labelled "questionable" 
were to be retained or deleted. The NAC staff wanted a firm over- 
all proposal from the Working Group rather than considering 
individual items. 



Given that the "delete" items were out and subsequent discussions 
showed that the "questionable" ones would become "deletes," the 
matter was not pursued further. BEA decided that the truncated 
survey would not provide data essential for the analysis of U.S. 
direct investment abroad, and chose to review the possibility of 
seeking new and specific legal authorization for the survey. 
Such a review is continuing. 

I would like to underline the fact that no member of the Working 
Group felt that the deleted data were unnecessary for analysis and 
policy purposes, but rather it was felt that the legal authority 
to collect data pursuant to the Bretton Woods Agreements Act did 
not cover the deleted items. 


Assistant Secretary for 
Economic Affairs 

Enclosures (2) 

U.S. Department of Commerce, 
Social and Economic Statistics Administration, 

Bureau of Economic Analysis, 

Washington, D.C., July 30, 197Jf. 
To: James A. Griffin, Chairman, NAC Working Group on Foreign Investment 

From : George R. Kruer, Chief, International Investment Division. 
Subject: Survey of U.S. Direct Investments Abroad. 

AVith reference to the July 12, 1974, meeting of the NAC Working Group 
on Foreign Investment Surveys, and the view expressed by some members 
that the information requested in the propo.sed Survey covering 1973 of U.S. 
Business Investments Abroad may exceed the legal authority conferred by the 
Bretton Woods Agreement Act, I wish to raise the following points for con- 
sideration by the Working Group: (1) a review of the Articles of Agreement 
of the IMF, which specifies the data to be furnished the Fund upon request 
and its relevance to the 1973 survey; (2) a review of the justification given 
by the NAC for its approval of the Survey of U.S. Business Investments 
Abroad taken for 1966; and (3) a comparison of the proposed 1973 survey 
with the 1966 survey to illustrate their similarity. These points support the 
view that the proposed survey is substantially the same in content as was the 
1966 survey approved by the NAC. Although the number of questions on the 
1973 survey may exceed the number of questions on the 1966 survey, the addi- 
tional questions primarily reflect an attempt to improve the quality of the 
data collected rather than to enlarge the scope of the .survey. The similarity 
between the past and proposed surveys, the record of previous action by the 
NAC in approving such surveys, and the continuing need of the U.S. Govern- 
ment for the data to be collected in order to comply with standing requests of 
the IMF and IBRD, justify approval l)y the NAC of the proposed survey. Since 
experience has shown that mandatory reporting is essential for a satisfactory 
response, we have requested NAC approval to conduct this survey under the 
mandatory authority of the Bretton Woods Agreement Act. 

Information Requested By the IMF 

To evaluate the standing request of the IMF to the U.S. Government to 
furnish data to the IMF, it is important to consider Article VIII, section 5, 
of the Articles of Agreement of the Fund, in its entirety. 


(a) The Fund may requii-e members to furnish it with such information as 
it deems necessary for its operations, including, as the minimum necessary for 
the effective discharge of the Fund's duties, national data on the following 
matters : 

(i) Official holdings at home and abroad, of (1) gold, (2) foreign exchange. 

(ii) Holdings at home and abroad by banking and financial agencies, other 
than official agencies, of (1) gold. (2) foreign exchange. 

(iii) Production of gold. 

(iv) Gold exports and imports according to countries of destination and 

(v) Total exports and imports of merchandise, in terms of local currency 
values, according to countries of destination and origin. 

(vi) International balance of payments, including (1) trade in goods and 
services, (2) gold transactions, (3) known capital transactions, and (4) other 

(vii) International investment position, i.e., investments within the terri- 
tories of the member owned abroad and investments abroad owned by persons 
in its territories so far as it is possible to this information. 

(viii) National income. 

(ix) Price indices, i.e.. indices of commodity prices in wholesale and retail 
markets and of export and import prices. 

(x) Buying and selling rates for foreign currencies. 

(xi) Exchange controls, i.e., a comprehensive statement of exchange controls 
in effect at the time of assuming member.ship in the Fund and details of subse- 
quent changes as they occur. 


(xii) Where official clearing arrangements exist, details of amounts awaiting 
clearance in respect of commercial and financial transactions, and of the 
length of time during which such arrears have been outstanding. 

(b) In requesting information the Fund shall take into consideration the 
varying ability of members to furnish the data requested. Members shall be 
under no obligation to furnish information in such detail that the affairs of 
individuals or corporations are disclosed. Members undertake, howevei', to 
furnish the desired information in as detailed and accurate a manner as is 
practicable, and, so far as possible, to avoid mere estimates. 

(c) The Fund may arrange to obtain further information by agreement 
with members. It shall act as a centre for the collection and exchange of 
information on monetary and financial problems, thus facilitating the prepara- 
tion of studies designed to assist members in developing policies which further 
the purposes of the Fund." 

The list of items contained in section 5, are "the minimum necessary for 
the effective discharge of the Fund's duties." Of the specific items listed, 
items (v), (vi), (vii), and (viii) describe data items we obtain in the survey. 
With reference to item (viii), the survey will permit the computation of value 
added for foreign affiliates and U.S. parents. Items (ix) and (x) could have 
been covered in the survey but were not because of the already extensive 
reporting required and the difficulty of obtaining such data without substan- 
tially increasing reporting. For 1966, affiliates were required to report data in 
foreign and U.S. currencies. This requirement for foreign currency reporting 
has been eliminated due to the difficulty of using data previously reported. 

It should also be noted that section 5 provides that the Fund "will consider 
the varying ability of members to furnish the data requested. . . . Members 
undertake to furnish the desired information in as detailed and accurate a 
manner as is practicable, and so far as pos.sible, to avoid mere estimates." 

The data requested by the IMF through Article VIII goes substantially 
beyond the request for a single balance of payments capital flow item or 
investment position item, which in this case could most narrowly be con- 
strued as the scope of a survey of U.S. direct investments abroad. It should 
also be recognized that the proposed survey attempts to measure all of the 
relevant balance of payments transactions and the investment position arising 
between U.S. parents and their foreign affiliates. Various transactions between 
U.S. parents and their foreign affiliates are specifically identified within the 
U.S. balance of payments accounts whenever they can be separately identified^ 
The benchmark survey has in the past and should continue to obtain data on 
the full range of these transactions. Furthermore, as in the past, the operat- 
ing data reported as financial statement items should continue to be obtained 
as a basis for evaluating the reliability and the significance of the balance 
of payments items we wish to measure. Section 5, subsection (c) which states 
that the Fund "shall act as a centre for the collection and exchange of in- 
formation on monetary and financial problems, thus facilitating the preparation 
of studies designed to members in developing policies which further the 
purposes of the Fund" is also subject to a broad inteniretation. The multi- 
national enterprise operations are ceretainly an integral part of international 
monetary and financial developments, problems, and policies. 


When considering whether the proposed .survey is necessary in order for the 
U.S. Government to comply with official requests from the IMF for balance 
of payments information, members of the Working Group should review^ care- 
fully "the criteria for the NAC approval of the 1966 Survey of U.S. Business 
Investments Abroad as summarized in the annual report of the NAC covering 
July 1, 1966. to June 30. 1976. The full text of the relevant section of that 
report is attached. 


The U.S. multinational company (MNC) covered by the Survey of U.S. 
Business Investments Abroad — 1973 is defined exclusively by the criteria used 
to define U.S. direct investments abroad for balance of payments purposes. 
Therefore, the universe of U.S. parent companies consists of those companies 


and their domestic affiliates who have direct investments abroad. The foreign 
component of the U.S. MNC consists of the foreign affiliate in which the 
full.v consolidated U.S. enterprise reporter has direct investments. The basic 
definitions of U.S. parent companies and their foreign affiliates are virtually 
the same in the 1973 as in the 1966 survey. 

For the 1966 survey one report form, called the "A-Form," collected data 
for U.S. parent companies while several report forms, including a "B-Form" 
for allied foreign affiliates (those in which U.S. ownership exceeded 25 per- 
cent), two other specifically designed B-Forms for foreign affiliates which are 
finance and insurance companies, and a "C-Form" for associated foreign 
affiliates (those in which U.S. ownership was between 10 and 25 percent) 
collected data for foreign affiliates. For the 1973 survey there is one form, 
the A-Form, to collect data for U.S. parent companies, and only one form, the 
B-Form, to collect data for all foreign affiliates. 

The scope and content of the B-Form for foreign affiliates in the 1966 and 
the proposed 1973 surveys are virtually identical. They both ask for the same 
general types of information — financial statements, data on investment between 
parents and affiliates, employment and U.S. merchandise trade data, and state- 
ments of changes in financial position. Within the various sections of the 
B-Form, some changes in detail have been made. These changes were primarily 
for clarification, to fill in gaps in the 1966 survey which greatly limited the 
usefulness of the 1966 data, or to simplify processing and reporting. In many 
cases, any addition of items to a section of the B-Form was offset by dele- 
tions of items. The only major changes in scope were made on the A-Form 
for U.S. parents. These, and the changes in detail on the B-Form are dis- 
cussed below. 

Although the 1973 A-Form is slightly abbreviated compared to the 1973 
B-Form, the A-Form has been expanded from the 1966 parent form. The A- 
Form was expanded as a result of the difficulties encountered in processing 
and analyzing the data for U.S. parent and foreign affiliate transactions when 
the two sets of data on the A and B-Forms were not parallel. We found that 
parellel reporting is necessary if the entire MNC — both its U.S. and foreign 
components — is to be considered as a whole. Furthermore, since the U.S. 
parent is. for U.S. balance of payments purposes, the principal TT.S. transactor 
of concern, we have expanded reporting for the consolidated domestic enter- 
prise to more fully analyze the role of the T^.S. parent. A comparison of the 
1966 and 1973 A-Forms will indicate an expansion of financial statements, and 
the addition of data for U.S. employment and employee compensation. The 
latter were added because of the interest in recent years in whether MNCs 
seek to invest in areas of low wages and whether this investment results in 
the export of U.S. jobs. Among other uses, financial statement items such as 
employee compensation will permit the computation of value added for U.S. 

Part of the expansion of the A-Form is also related to one of the most 
important changes introduced in the 1973 surve.v — the integration of items 
such as financial position, trade, sales, or other data items for which country 
or other detail are requested, with items reported in the financial statements 
of the affiliate and the U.S. parent. When detail items are subsets of an 
aggregated financial statement item, their relationship to the more aggregated 
item is clearly specified. This integration should not only facilitate editing 
and processing, but also should improve the definitions, consistency, and 
accuracy of data items included in the survey. 

The A and B Forms contain two sections, one for trade items and one for 
the industry classification of the entity being reported — the U.S. parent or 
the foreign affiliate — which may give an initial appearance of an increased 
reporting burden. Upon closer examination, it is evident that a change has 
been made only in reporting method with the objectives of reducing processing 
time and improving the data. The data to be reported are more or less the 
same as for 1966. For example, the survey for 1966 asked Reporters to list 
the countries against which the Reporter will enter exports. This list looks 
longer than in 1966 when the Reporter was asked to list the countries himself. 
We are asking for no additional data, but the preprinted country lines means 
they are precoded. and therefore saves us processing time and eliminates er- 
rors since there is a possibility of error each time a person has to enter a code. 

The other example is the industry classification of the Reporter or the 
foreign affiliate obtained on the A and B Forms respectively. In 1966, the 
Reporter was asked to give a written description of its own and each of its 
aflaiiates "type of business." This led to many telephone calls to Reporters and 
considerable time expended on researching public information (Moody's, Stand- 
and Poor's) in order to be able to assign an industry classification to both 
Keportei's and affiliates. Un the 1973 A and B Forms, an entire page of the 
form will consist of preprinted, and precoded, industry classifications against 
which a Reporter is to enter his percentage of sales, for those categories ac- 
counting for over 5 percent of sales. This takes up a large amount of space 
on the form and therefore may give the appearance of an increase in Reporter 
burden. This is not the case. Based on our experience with the 1970 mini- 
census and the recent Sources and Applications survey, the "typical" aflaliate 
will probably make only about 4 entries. There will always be the "conglomer- 
ated" types with many entries, but these will be offset by the single industry 
types, such as crude oil producing aflSliates. The offset to any possible increase 
in Reporter burden is the very real gain we make in reducing processing effort 
and time by using precoded industry bl(»cks. These types of changes are the 
ones that will insure that the results of the 1973 survey will be available with 
a sharply reduced time lag compared with the previous survey and with in- 
creased accuracy. 

The 1966 survey included, in addition to the A, B, and C Forms, separate 
forms to record foreign trade — the E-S Form on which exports of the parent 
were reported and the E Form on which imports from the U.S. by the affiliate 
were reported. This type of information will be collected in the 1973 survey 
but within the A Form and B Form. Eliminated are the duplication of items 
reported on the E and E-S Forms and certain questions on the intended use 
of goods traded, and the separate reporting of goods charged and goods con- 
signed for export. The 1973 A-Form asks for data on imports where previously 
sales data reported by foreign affiliates were used as a proxy and data on im- 
ports by U.S. Reporters from unaflHliated foreigners were not obtained at all. 
We have added questions to obtain a product break of both aflSliate and par- 
ent trade. Since trade is measured in the U.S. balance of payments accounts 
on a "when and where shipped" rather than "when and where charged" basis, 
we have adopted this criterion to define the merchandise trade, and have 
eliminated the reporting of exports on both bases which greatly complicated the 
1966 survey. The net effect of these changes is probably nil in terms of number 
of items to be reported. 

As mentioned above, the 1966 survey also contained separate B Forms for 
finance and insurance companies, which are treated as exceptions when meas- 
uring direct investments for the T\S. balance of payments accounts or the 
international investment position where there is special accounting treatment 
of financial records. To standardize reporting and to simplify the proces.sing of 
the data, we have incorporated all -special industry reporting within the format 
of the A and B Fonns and included special instructions where necessary. 

Data for sources and applications of funds were collected for 1966 for for- 
eign aflSliates solely as "change" data. For the 1973 survey, part of them are 
being collected as "change" data, but some are to be derived as the difference 
between the beginning-of-year and end-of-year balances. Obtaining data on both 
stocks and flows will permit stock/flow analyses of external sources of funds 
and financial uses of funds. A transactor break is obtained in the survey for 
items such as sales or trade, to identify transactions of foreign afiiliates with 
the U.S. Reporter, other foreign affiliates of the U.S. Reporter, other foreign 
residents, and other U.S. residents. Similarly, for sources and uses of funds, 
a transactor break will be obtained for stocks rather than for flows only, as 
was obtained for 1966. These data will give a complete picture of external 
financial transactions of the foreign affiliates. Data to be collected within the 
sources and applications of funds statements also include a reconciliation of 
the property, plant and equipment (PPifcE) accounts found in the balance 
sheet. These datn were also collected in 1966. 

One section of Form P. that was revised substantially for the 1973 survev is 
the Part IT section collecting data on U.S. direct investments abroad. Addition- 
al questions are included primarily to refine data for direct investment capital 
flows by identifying non-flow items or transactions in the foreign affiliate's 


stock which involve a country other than that of the foreign affiliate heing re- 
ported. For 1966 similar questions were asked but not as specifically. Thus, re- 
porting was inconsistent and required special attention or telephone calls to 
Reporters in processing, and the derived adjustments could not be put on 

Annual report of activities of the National Advisory Council 
on International Monetary and Financial Policies 

Letter froai Secretary of the Treasury, Chairman, 

National Advisory Council on International Monetary and 

Financial Policies 

transmitting the annual report of the policies and operations of the 

COUNCIL covering THE PERIOD JULY 1, 1966, TO JUNE 30, 1967 

During the fiscal year, net gold sales by the United States to foreign coun- 
tries totaled $232 million compared with sales of $378 million in fiscal year 
1966. The substantial further reduction in the volume of gold sales continued 
the improved trend noted in the annual report a year ago. France was again 
the principal buyer, purchasing $277 million. All French purchases took place 
during the first fiscal quarter. The main offsets to this loss were receipts of 
gold from the United Kingdom and Canada totaling $175 million. 


In May, the Council approved a request of the Government and Central Bank 
of Argentina for a $75 million, 1-year, exchange agreement with the U.S. 
Treasury. The Agreement supplements a $125 million I]MF standby arrange- 
ment with Argentina announced by the Fund on May 1. 1967. and is intended 
to assist Argentina in promoting economic stability and freedom in its trade 
and exchange system. Under the terms of the Agreement, the United States 
may purchase Argentine pesos with dollars, and any pesos so acquired would 
be subsequently repurchased by Argentina. 

An exchange of letters in June 1967 between Secretary of the Treasury 
Fowler and the Ambassador of Mexico, Hugo B. Margain, increased from $75 
million to $100 million the amount of the existing 2-year exchange stabiliza- 
tion agreement between the United States and Mexico, signed in December 
1965. The agreement provides for reciprocal swap facilities which will enable 
the financial authorities of either country to cooperate in the maintenance of 
stable and orderly conditions in the exchange markets. 


During 1967 the Department of Commerce started on a comprehensive survey 
of American business investments in foreign countries to provide an accurate 
account of the amount of such investments at the end of 1966, the net increase 
in these investments during that year, the return on these investments, and 
their significance for the balance of payments of the United States and the 
foreign host countries. The data collected in the survey will establish a com- 
prehensive statistical benchmark required for the accuracy of the statistical 
series on direct investment, and related transactions in the U.S. balance-of- 
payments accounts. The survey for 1966 is the latest in a series of similar sur- 
veys which have been undertaken at irregular intervals in the past. 

Since experience had shown that mandatory reporting is essential for satis- 
factory results, the Commerce Department proposed to the National Advisory 
Council that the survey be undertaken pursuant to the mandatory authority in 
section 8 of the Bretton Woods Agreement Act. The two most recent surveys of 
direct investment (1950 and 1957), were conducted under this authority. 

To make this authority operative, action by the NAC is required pursuant to 
Executive Order 10033. The Order provides that the National Advisory Council, 
in consultation with the Director of the Bureau of the Budget, .shall determine 
what information is essential to enable the U.S. Government to comply with 
official requests from the International Monetary Fund : that the Director of 
the Bureau of the Budget shall the U.S. Government agency which 


will collect the information, and that in the collection of information pursuant 
to such designation, the authority conferred on the President by section 8 
of the Bretton Woods Agreements Act to furnish such information, by sub- 
poena or otherwise, may be exercised by certain Government agencies, includ- 
ing the Department of Commerce. 

On June 6, 1967, the National Advisory Council, after consultation with the 
Director of the Bureau of the Budget, determined that the collection of data 
for 19€6 on American direct investments abroad is essential, in order that the 
U.S. Government may continue to comply with official requests from the Inter- 
national Monetary Fund for balance-of-payments information. 

In making this determination, the National Advisory Council examined the 
nature and significance of U.S. direct investments abroad in the light of cur- 
rent conditions in the U.S. balance of payments, and the nature of current 
requests from the International Monetary Fund for information on the U.S. 
balance of payments. In this connection, the NAC took into consideration the 
following facts: Since 1957, the United States has had large and persistent 
balance-of-payments deficits and has introduced certain measures to discourage 
private capital outflow for the purpose of helping to hold the deficits within 
reasonable limits. These measures include the voluntary restraint program of 
the Department of Commerce, which applies to the direct investment operations 
of U.S. firms abroad. In recent years there have been large increases in the 
amount and complexity of these operations, and the direct investment activities 
of U.S. business enterprises are now of such magnitude and affect so many 
aspects of the U.S. balance of payments that adequate analysis requires a 
considerable amount of Information on the details of the direct investment 
operations, as well as data on the amounts invested. The information on the 
U.S. balance of payments requested by the International Monetary Fund cov- 
ers not only statistical data but also a broad range of inquiries into the major 
aspects of our balance of payments. Inquiries associated with the aiuiual con- 
sultations of the International :\Ionetary Fund with the ITnited States cover 
among other things the nature and effects of private capital movements, an 
evaluation of the use of voluntary restraints on various forms of U.S. invest- 
ments abroad, and inquiry into other aspects of pi'ivate capital outflow. 

United States Government, 

August 13, 1974. 
NAC Working Group. 
To : NAC Working Group. 
From : James A. Griffin, Chairman. 

Subject: Commerce Department's Proposed Survey Forms for Outward Direct 

Attached for your comment and clearance is a revi.sed draft report to the 
NAC. The Working Group did not review Form A of the Commerce proposed 
questionnaire, which calls for information from and on the parent firms. 
However, rather than have the Group meet again, I went over Form A with 
George Kruer and we agreed that certain items should be treated as per the 
attached on the basis of the Group's views on similar type questions in Form 
B. These are only proposals for the approval of the Group however. 

T have flagged some of the questions-- in Form A and Form B as "question- 
able" because I did not feel that there was a clear consensus on these items. 
In reporting to the NAC, however. I think we should, if possible, give them a 
clear yes or no on all items so I would ask you to focus on these items again 
and give me your views. 

Also note that the draft memo states that the members of the Working 
Group will pursue the question of the feasibility of seeking legislation within 
their own agencies and in appropriate interagency forums. 


NAC Working Group 

Questions in Commerce Department's proposed form for Survey of U.S. 
Direct Investment Abroad as of end-73 which .should be deleted or are ques- 
tionable under Bretton Woods authority 


Form A. 

37^8, Income statement. Questionable. 

49-51, Dividends received, interest received, interest paid. Delete. 

53, Taxes, etc. Questionable. 

54-55, Research and development. Delete. 

58-61, Expenditures for property, plant and equipment, depletion and depre- 
ciation. Questionable. 

62-75, Petroleum and mining exploration and development expenditures. 

76-125, Merchandise trade of U.S. reporter with foreigners other than foi'eign 
affiliates of U.S. reporters. Questionable. 

Form B. 
23, Inventory valuation method. Delete. 

30, Number of establishments affiliate operates. Delete. 

31, Licensing agreements with U.S. reporter. Delete. 

80, Total employment. Delete. 

81, Employee compensation. Delete. 

103-107, Property plant and equipment. Questionable. 

120-122, Dividends received, interest received, interest paid. Delete. 

124, Taxes, etc. Questionable. 

125, Research and development. Delete. 

128-138. Employment and employee compensation. Delete. 

140-142, Sales in affiliate's country of location, exports to U.S.. exports to 
other countries. Questionable. 

143-152, Geographic breakdown of exports to other countries. Delete. 

154-168, Breakdown by product of goods shipped to affiliate from U.S. Ques- 

170-179, Breakdown by product of goods shipped by affiliate to U.S. Delete. 

180-181, Non-U.S. merchandise trade of foreign affiliate. Delete. 


Memorandum to : Robert Watson. Executive Secretary, National Advisory 

From : .Tames A. Griffin, Chairman, NAC Working Group on Foreign Invest- 
ment Surveys. 

The Working Group met on July 12 and August 6, 1974, to consider a re- 
quest by the Commerce Department for NAC approval to imdertake a manda- 
tory survey of U.S. direct investments abroad as of end-1973 under the author- 
ity of the Bretton Woods Agreements Act. 

The Bretton Woods Agreements Act authorizes the President (through any 
agency he may designate) to require persons to furnish information which 
he determines to be essential to comply with requests from the International 
Monetary Fund for data under Article VIII of the Articles of Agreement of 
the IMF. The relevant section of Article VIII is as follows : 


(a) The Fund may require members to furnish it with such information as 
it deems necessary for its operations. Including, as the minimum necessary for 
the effective discharge of the Fund's duties, national data on the following 
matters : 

(i) Official holdings at home and abroad, of (1) gold, (2) foreign exchange. 

(ii) Holdings at home and abroad by banking and financial agencies, of (1) 
gold, (2) foreign exchange. 

fiii) Production of gold. 

(iv) Gold exports and imports according to countries of destination and 

(v) Total exports and imports of, in terms of local currency 
values, according to countries of destination and origin. 

(vi) International balance of payments, including (1) trade in goods and 
.services, (2) gold transaction, (3) known capital transactions and (4) other 

(vii) International investment position, i.e., investments within the terri- 


tories of the member owner abroad and investment abroad owned by persons 
in its territories so far as it is possible to furnisli this information. 

(viii) National income. 

(ix) Price indices, i.e., indices of commodity prices in wholesale and retail 
markets and of export and import prices. 

(x) Buying and selling rates for foreign currencies. 

(xi) Exchange controls, i.e., a comprehensive statement of exchange controls 
in effect at the time of assuming membership in the Fund and details of 
subsequent changes as they occur. 

(xii) Where official clearing arrangements exist, details of amounts awaiting 
clearance in re.spect of "commercial and financial transactions, and of the length 
of time during which such arrears have been outstanding. 

(b) In requesting information the Fund shall take into consideration the 
varying ability of members to furnish the data requested. Members shall be 
under no obligation to furnish information in such detail that the affairs of 
individuals or corporations are disclosed. Members undertake, however, to 
furnish the desired information in as detailed and accurate a manner as is 
practicable, and, so far as possible, to avoid mere estimates. 

(c) The Fund may arrange to obtain further information by agreement 
with members. It shall act as a centre for the collection and exchange of 
information on monetary and financial problems, thus facilitating the prepara- 
tion of studies designed to assist members in developing policies which further 
the purposes of the Fund. 

Executive Order 10033 charges the NAC with determining, after consulta- 
tion with the director of 0MB, "what information is essential in order that 
the U.S. Government may comply with ofiieial requests for information" from 
the IMF or IBRD. 

Although the IMF has not specifically requested that the U.S. furnish it with 
updated data on its international investment position at this time. Article VIII 
is considered a standing request for data which is reasonably accurate. Since 
the last surveys of the U.S. inward and outward direct investment positions 
were taken for the years 1959 and 1966 re.spectively. the Working Group consid- 
ers that it is appropriate and desirable that surveys be undertaken in the 
near future in order to assure that the U.S. data are reasonably accurate. 

However, the IMF has never given any specific instructions on what infor- 
mation it requires from the U.S. or the other member countries. Thus, it is 
left to the judgment of each member as to how detailed the information 
should be in order to comply with the standing request. 

This lack of specificity in the terms of reference plus a growing desire for 
more data on the part of the U.S. government has led to increasingly detailed 
questionnaires in connection with U.S. direct investment abroad and some of 
the information called for in the questionnaire form proposed to the Working 
Group by the Commerce Department for the 1973 survey would be, in the view 
of most members of the Group, difficult to justify under the Bretton Woods 

Some members of the Group felt that the proposed questionnaire did not 
go substantially beyond the 1966 survey in this respect and that the latter 
should serve as a precedent and guide for this purpose. It was noted that 
there was no indication from the reporting community that they considered 
the 1966 survey in excess of what the Government could justifiably ask for. 
Most of the Group, however, felt that the 1966 precedent was not particularly 
meaningful. An important consideration^ here was the fact that the reporting 
burden on the business community has increased in recent years and in the 
next 6 months or so business firms will be undergoing a particularly heavy 
reporting burden.^ In this kind of environment, concern was expressed that a 
questionnaire of the kind proposed by the Commerce Department might pro- 
voke a court challenge of the Government's authority under the Bretton Woods 
Act and that in such event tlie Government's case might be somewhat tenuous. 
Apart from the risk of a court challenge, it was noted that the Government 
has an obligation to police itself and as.sure that its desire for data does not 
exceed its actual authority. 

1 In addition to filine under the proposed survey of outward direct investment, most 
of these same firms will be filing special reports on : (a) their foreign currency holdings 
under the Proxmire Amendment to the Par Value Modification Act, (b) foreign holdings 
of U.S. securities under the Inouye-Culver legislation, and (c) line-of-business data to 
the F.T.C. 


One possible solution to the problem would be for the U.S. Executive Direc- 
tor to the IMF to propose to the Fund Board that the Fund give more spe- 
cific instructions on what data it requires. The Working Group recommends 
that the NAC con.sider this possibility. 

The Working Group unanimously agreed that the ideal solution to the prob- 
lem would be for the Government to have new legislative authority for the 
collection of all data relating to the balance of payments. There is a good 
deal of information on the operations of multinational companies which, while 
perhaps not necessary for the purposes of the IMF. is necessary to gain an 
understanding of the effects of these companies' operations on U.S. employ- 
ment, income, exports, imports, tax revenue, etc., subjects which have become 
of increasing interest in recent years. 

The new legislative authority would be similar in scope to the Inouye-Culver 
legislation in authorizing a detailed survey of foreign investment in the 
U.S. and would be on a continuing basis. The members of the Working Group 
agreed to pursue the question of the feasibility of requesting such legi.slation 
within their own agencies and in the appropriate inter-agency forum. 

Most members of the Group, however, felt it would not be advisable to 
defer any survey of U.S. direct investment abroad in anticipation of obtain- 
ing such legislation, which would probably take at least a year to become 
effective, since it has already been seven years since the last survey was 
taken. Accordingly the Group reviewetl the survey form proposed by the 
Commerce Department in the context of the foregoing considerations relating 
to the Bretton Woods authority and concluded that some of the questions 
should be deleted from the form. A copy of the form showing the deleted 
items is attached. 



Agency room No. code) 


James A. Griffin, Chairman.. 5100 184-2386 

Fred Cutler 5100 184-5143 

Walther Lederer 5130 184-5681 

DIrck Keyser 5130-D 184-8027 

GaryG. Hufbauer... 5121 184-8784 

John Cambon 5400 184-5177 

Josef E. H§bert (NAC) 5037 184-2940 


George R. Kruer _._ 608 (Tower BIdg.) 139-30703 

Ida May Mantel... 616 (Tower BIdg.) 139-30646 

John Bogumlll 618 (Tower BIdg.) 139-30687 

Federal Reserve: 

Guy Stevens 553 (Watergate 600) 147-3540 

Sam Pizer 540 147-3780 

0MB: David T. Hulett.. 10208-NEOB 103-4730 

AID: Melo 3889 101-21337 

U.S. Department of Commerce, 
Social and Economic Statistics Administration, 

Bureau of Economic Analysis. 
Washington, D.C., June 2Jf, 191Jf. 
To : Fred Springborn, Executive Secretary, National Advisory Council on 

International Monetary and Financial Policies. 
From : George R. Kruer, Chief, International Investment Division. 
Subject : Surveys of Business Investments Abroad and in the United States, 
The Bureau of Economic Analysis, U.S. Department of Commerce, is prepar- 
ing to conduct two surveys: (1) a survey of U.S. business investments abroad 
in 1073. and (2) a -survey of foreign business investments in the U.S. in 1973. 
Data collected in these surveys will provide a benchmark reference base for 
the quarterly balance of payments series relating to direct investments. In 
addition, the data to be collected are necessary in order to analyze the impact 
of the operations of multinational companies on the balance of payments and 
the domestic economies of the United States and foreign countries. 


This Bureau collects quarterly balance of payments data on a mandatory 
basis pursuant to a standing request to the U.S. Government from the Interna- 
tional Monetary Fund (IMF) for balance of payments data. In order to main- 
tain the accuracy of the sample surveys upon which the current balance of 
payments data are based, it is necessary to conduct periodic benchmark sur- 
veys. We are proposing that the filing of reports in these proposed benchmark 
surveys be made mandatory pursuant to Section 8 of the Bretton Woods Agree- 
ments Act (59 Stat., 22 U.S.C. 286f). In accordance with sections 2(b) and 
2(c) of Executive Order 10033 of February 8, 1949 (14 F.R. 561), as amended, 
the NAG is to determine what information is to be furnished to the IMF, 
and the Director of the OfBce of Management and Budget (OMB) has the 
power to determine which agencies should collect information required by 
the IMF. The Department of Commerce is the federal executive agency which 
collects the required data on direct investments and the Secretary of Com- 
merce has assigned this responsibility to the Bureau of Economic Analysis. 

We are requesting NAG concurrence that these surveys are necessary in 
order to fulfill the U.S. Government's obligations to the IMF. If the NAG 
concurs, then the OMB, to which requests are being made for approval of the 
proposed report forms under the Federal Reports Act, can give approval to 
the Department to conduct the surveys on a mandatory basis. 

A typed copy of the proposed report form, excluding the industry classifica- 
tion booklet, for the 1973 survey of U.S. business investments abroad is at- 
tached. The last such survey, covering 1966, was approved on June 6, 1967 by 
the NAG for collection on a mandatory basis. (See pages 64 and 65 of the 
NAG annual report for fiscal year 1967 : NAG Staff Document No. 67-4, May 
1, 1967; and NAG Action No. 67-171, June 6, 1967.) 

The last survey of foreign business investments in the United States, cov- 
ering 1959. was approved by the NAG for collection on a mandatory basis. (See 
pages 23 and 24 of the NAG semi-annual report for the period January to 
June 1960.) A copy of the proposed report form for the 1973 survey will be 
sent to OMB and to the NAG within the next month. 

U.S. Department of Commerce — Bxireau of Economic Analysis 
Survey of U.S. Business Investments Abroad — 1973 

I. introduction 

A. Purpose 

The Survey of U.S. Business Investments Abroad — 1973 is being conducted 
by the Department of Commerce to obtain complete and accurate data on the 
amount of direct business investments at the end of 1973, the net increase in 
investments during the year, the return on these investments, and certain as- 
l>ects of their operations which affect the U.S. and foreign economies. Direct 
investment, as distinct from portfolio investment, refers to investment which 
involves a significant influence in or a substantial element of control over 
the management of a foreign business enterprise. For the purposes of this 
survey, such influence or control is assumed to exist when the foreign business 
enterprise is owned by a U.S. person to the extent of 10 percent or more. 
The last suoli Survey was conducted for 1966. 

The data collected in this Survey will be used in the formulation of Govern- 
ment policy and will .serve as a base from which data collected in sample sur- 
veys can be expanded to reliable total- estimates. These total estimates are 
used in the compilation and analysis of the United States balance of payments. 

B. Legal Basis 

The filing of reports for this Survey is mandatory under Section 8 of the 
Bretton Woods Agreement Act (59 Stat. 515. 22 U.S.C. 268f). In accordance 
with sections 2(b) and 2(c) of Executive Order 10033 of February 8. 1949 
(14 F.R. 561). as amended, the Director of the Office of Management and 
Budget has designated the Department of Commerce as the federal executive 
agency to collect the. required data, and the Secretary of Commerce has as- 
signed this respon.sibility to the Bureau of Economic Analysis. This Survey 
has been approved by the Office of Management and Budget under the Federal 
Reports Act (Public Law No. 831. 77th Congress). All replies will be held in 
.strictest confidence by the Bureau of Economic Analysis. Department of Com- 


merce, under the provisions of section 4(b) of that Act and section 8(c) of 
the Bretton Woods Agreements Act. Tlie information will be used exclusively 
for statistical purposes and published only in such aggregates which preclude 
the disclosure of data supplied by individual reporters. No reporter is required 
or requested to submit a rely to any specific question on these forms, if, by 
so doing, the security laws of a foreign country are violated. 


A. Defiwi.tions 

For the purposes of this Survey and any instructions or rulings issued here- 
under, the following definitions are prescribed : 

1. Person shall mean an individual, a corporation, a branch, a partnership, 
an associated group, a joint-stock company, a trust, an estate, or other unin- 
corporated organization. 

2. Associated Group shall mean two or more U.S. persons who, by the appear- 
ance of their actions, by agreement, or by an understanding, exercise their 
voting privileges in a concerted manner to influence the management of a for- 
eign business enterprise. The following are deemed to be associated groups: 

(a) Members of the same family. 

(b) A corporation and one or more of its officers or directors. 

(c) Members of a syndicate or joint venture. 

(d) A corporation and its domestic subsidiaries. 

3. Business Enterprise shall mean any organization, branch, or venture which 
exists for profit making purposes, and any real estate which is owned. 

4. Branch shall include (a) the operations or activities conducted by an in- 
corporated or unincorporated person in its own name in a different location, 
but not through an incorporated entity, and (b) the foreign business of U.S. 
mutual insurance companies. 

5. Foreign Affiliate shall mean a foreign business enterprise which is direct- 
ly and/or indirectly owned by a U.S. person to the extent of 10 percent or 
more of its voting stock for an incorporated business enterprise or an equiva- 
lent interest for an unincorporated business enterprise. 

6. U.S. Reporter shall mean the U.S. person required to file a report in this 

7. Parent refers to (a) the U.S. Reporter holding a reportable direct owner- 
ship interest in a foreign affiliate; (b) the U.S. Reporter filing a Form B 
to report direct debt positions and transactions between himself and one of 
Ills indirectly owned foreign affiliates: and (c) the foreign affiliate of the 
U.S. Reporter which holds a direct ownership interest in another foreign affil- 
iate of the U.S. Reporter. 

8. United States shall refer to the 50 states of the United States ; the Dis- 
trict of Columbia ; the Commonwealth of Puerto Rico ; the Panama Canal 
Zone ; the U.S. Virgin Islands ; and all other territories and possessions of the 
United States. 

9. Foreign shall mean that which is situated outside the United States : be- 
longing to, characteristic of, or under the jurisdiction of a country or political 
entity other than the United States. 

B. Who Must Report 

1. Basic Requirement — A BE-10 report is required from every U.S. person 
having a foreign affiliate, that is, every U.S. per.son having direct and/or indi- 
rect ownership of at least 10 percent of the voting stock of on incorporated 
foreign business enterprise, or an equivalent interest in an unincorporated 
foreign business, at any time during the year ending December 31. 

Reports are required even though the foreign business enterprise may have 
been established, liquidated, sold, destroyed, or expropriated during the re- 
porting period. 

2. Other Requirements. — (a) Persons with beneficial interests: A IT.S. per- 
son who owns a beneficial interest in a foreign affiliate shall report, whether 
or not he is the owner of record, except as specifically provided lielow for 
estates and trusts. 

(b) Estates and trusts: The report filed for an estate or trust should be 
filed bv the fiduciary and not by the beneficiary. Estates or trusts established 

under the laws of the United States are subject to the requirements of this 

Estates or trusts actually created in the United States must report even 
though the trust instrument provides that the trust shall be subject to the 
laws of a foreign country. 

(c) Business enterprise in the United States owned by a foreign person: A 
business enterprise in the United States owned by a foreign person shall report 
with respect to any foreign business enterprise it owns directly and/or indi- 
rectly, to the extent of 10 percent or more^ but shall not report other property 
of its foreign owner. 

C. Exemptions and Exclusions 

1. Type of property. — Property held exclusively for personal use, and not for 
profit-making purposes, is exempt for purposes of this Survey. For example, 
hunting lodges, homes, and automobiles for personal use are exempt. 

2. Status of person. — A report need not be filetl by persons who are (1) citi- 
zens of the United States who permanently reside in a foreign country, or (2) 
U.S. residents who are officers or employees of foreign governments or interna- 
tional (quasi-governmental) organizations and members of the immediate 
families of such individuals, provided they are not citizens of the United 

3. Foreign nonprofit organizations. — Foreign religious bodies, charitable or- 
ganizations, and other nonprofit organizations are not business enterprises and 
therefore an ownership interest in these types of organizations by U.S. persons 
is not reportable. 

4. Partial exemption. Form A. — U.S. Reporters who are religious, charitable, 
or other nonprofit organizations or who are individuals are required to file a 
BE-10 report, but are exempt from filing the financial data section of Form A. 

5. Total filing exemption. Form B. — If the foreign affiliate's total assets and 
net sales or gross operating revenues excluding .sales taxes (items 73 and 74 
of Form B) are eaeh less than .$250,000 (two hundred and fifty thousand dol- 
lars) no Form B need be filed for the foreign affiliate. Value is to be deter- 
mined based on the books of the foreign affiliate translated into U.S. dollars. 
However, if a foreign affiliate owns another foreign affiliate for which a Form 
B must be filed, then a Form B must also be filed for the foreign parent re- 
gardless of the value of the foreign parent's assets or income. That is, all affil- 
iates upward in a chain of o\^Tlership must be reported. 

6. Partial reporting exemption. Form B. — If, for a given foreign affiliate, 
the following four items are each less than ,$3,000,000 (three million dollars), 
then the U.S. Reporter is exempt from completing Part lY, Financial Schedules 
for the affiliate: (i) Total assets; (ii) net sales or gross operating revenues 
excluding sales taxes: (iii) U.S. merchandise exports shipped to the affiliate: 
and (iv) U.S. merchandise imports from the affiliate. 

These four items are to be reported for each affiliate in Part III. Selected 
Financial Data of the Foreign Affiliate, items 73. 74. 7?;. and 76. respectively. 
Value is to be determined based on the books of the foreign affiliate translated 
into U.S. dollars. However, if a foreign affiliate owns another foreign affiliate 
for which a complete Form B must be filed, then a complete Form B must 
also be filed for the foreign parent regardless of the value of the foreign 
parent's assets, income or U.S. trade. That is. all affiliates upward in a chain 
of ownership from an affiliate for which a complete report must be filed, must 
file a complete report. 

D. Coverage and Nvml)cr of Completed Forms Required 

1. Form A. — A Form A should be filed by the U.S. Reporter covering the fully 
consolidated U.S. domestic enterprise. Form A should be filed by the U.S. per- 
son which is not owned, to the extent of more than 50 percent of its voting 
rights, by any other TLS. person. CException: When a T^.S. business enterprise 
is owned more than 50 percent by an individual, the report should be filed by 
the business enterprise rather than the owning individual.) For corporate re- 
porters, the fully consolidated domestic enterprise is defined to include the 
domestic operations of every corporation which is resident in the United States 
and is owned to the extent of more than 50 percent of its voting stock bv the 
reporting U.S. corporation and its maioritv-owned U.S. corporations. Conso- 
lidate every Domestic International Sales Corporation which is owned to the 


extent of more than 50 percent of its voting stock. Do not consolidate data 
for foreign affiliates on Form A. 

2. Form B. — A U.S. person is required to file at least one Form B for each 
foreign aflSliate, i.e., for each foreign business enterprise in which the U.S. 
person owns directly and/or indirectly at least 10 percent of the voting stock 
or an equivalent ownership interest. (To determine a U.S. person's percentage 
of indirect voting ownership in a goven foreign business enterprise, multiply 
first foreign business enterprise in the ownership chain by the succeeding direct 
the initial direct voting ownership percentage held by the U.S. person in the 
voting ownership percentages held by each intermediary foreign business en- 
terprise in the ownership chain between the U.S. person and the given foreign 
business enterprise.) All direct and indirect chains of ownership interests held 
by a U.S. person in the given foreign business enterprise are summed to 
determine whether the enterprise is a foreign aflSliate of the U.S. person for 
purposes of reporting on Form B. 

In cases where the i-ecord keeping system of the foreign affiliates makes 
it impossible or extremely difficult to file a separate report for each foreign 
affiliate, the U.S. Reporter should call this office (202-523-0632) for guidance. 
Under these conditions, the U.S. Reporter may l)e given permission to file a 
consolidated report for two or more affiliates, but only for those affiliates 
which are in the same country and which are classified in the same industry. 
Under no circumstances may a U.S. Reporter consolidate foreign affiliates 
in different countries or in different industries. (See the "Industry Classifi- 
cations' portion of the Indristrial Classifications and Export and Import Trade 
Classifications booklet to determine whether the affiliates have the .same indus- 
trial classification.) 

U.S. Reporters who participate in other BEA direct investment surveys must 
consolidate in the same manner for all foreign affiliate forms subsequently 
filed with the Bureau of Economic Analy.sis. such as Forms BB-133, BE-577 
and BE-578. In cases where current consolidation practices on these forms 
do not conform to the above instructions, the U.S. Reporter is requested to 
change the consolidation practices on Forms BE-133, BE-577 and BE-578. 
When a form based upon the amended consolidation practice is submitted, 
please bring it to this Bureau's attention when filing the form. 

If two or more U.S. Rejtorters jointly own a foreign affiliate, directly or 
indirectly, each U.S. Reporter must submit a Form B for the affiliate. Only 
one of these forms must have Part III, Selected Financial Data of the Foreign 
Affiliate and Part lY, Financial Schedules, completed. The Form B of the 
U.S. Reporter having the highest percentage of ownership in the foreign affil- 
iate should contain the complete data. Where the percentage is the same, the 
U.S. Reporters must agree among themselves as to who will submit Parts 
III and IV. If Parts III and IV are not submitted on a particular form, please 
indicate in item 14 of the Identification Section which U.S. Reporter is filing 
the data. 

Multiple Form B's are required to be filed by the U.S. Reporter for a single 
foreign affiliate to separately report : 

(a) For each direct line of ownership in a foreign affiliate which is held 
by the U.S. Reporter or a foreign affiliate of the U.S. Reporter: and 

(b) For direct financial positions or transactions with the U.S. Reporter 
when the foreign affiliate is indirectly owned by the If.S. Reporter. 

Solid lines indicate owner.ship ; dotted lines indicate financial transactions. 
In this situation, the following Form B's are required : 

(a) One Form each for Affiliates A and B to .'•how direct ownership lines 
1 and 3 by the U.S. Reporter. 

(b) Three Forms of Affiliate C, one to show direct ownership line 5 by 
Affiliate A, one to show direct owner.ship line 6 bv Affiliate B. and one to show 
the direct financial transaction line 2 with the ILS. Reporter. (In the last case, 
the U.S. Reporter is considered to be a "Parent" for the purpose of completing 
that Form B even though he has no direct ownership interest in Affiliate C) 

(c) Two Forms for Affiliate D. one to show direct ownership line 4 by the 
U.S. Reporter, and one to show direct ownership line 7 l)y Affiliate B. 

(d) One Form for Affiliate E to show direct ownership line S by Affiliate D. 


A separate Form is not required for financial transaction line 9 because 
this is a financial transaction between foreign affiliates having no direct 
ownership relation to each other. 

A separate Form is not required for (reverse) ownership line 10; the data 
for this investment would be reflected on the Form for ownership line 5. 

If multiple form are required from one U.S. Reporter for one foreign affil- 
iate, only one of these forms should be completed in full, including Part III. 
Selected Financial Data of the Foreign AflSliate and Part IV, Financial Sched- 
ules. For the remaining forms, only Parts I and II need be completed. The 
form completed in full should be the one which shows the highest percentage 
of direct ownership interest. In item 14 of the Identification Section of the 
additional forms, indicate which form includes the complete data. 

E. Miscellaneous 

1. Accounting records to he used. — In supplying the information required 
in this Survey, data for corporations should be derived from the type of rec- 
ords used to generate reports to stockholders. Reports for unincorporated 
persons should be derived from equivalent records. 

2. Reporting period. — If at all possible, reports should be submitted on a 
calendar year basis for the year ending December 31, 1973. If this necessitates 
the estimation of annual data based upon quarterly or monthly reports in order 
to present the data on a calendar year ba.sis, or closer to a calendar year 
basis, such estimates are acceptable. 

3. Annual !^tockholdcr\s report. — U.S. Reporters are requested to submit, along 
with their BE-10 report, a copy of their annual report to stockholders. 

4. Required information not available. — All reasonable efforts should be 
made to obtain information required for reporting. Every question on each 
form should be answered except where U.S. Reporters are specifically exempt 
from reporting certain Parts or items on the forms. When properties have 
been expropriated or seized, the latest available information should be used. 
Where only partial information is available, an appropriate indication should 
be given. 

5. Estimates. — If actual figures are not available supply estimates. When 
data items requiring detailed breakdowns cannot be fully sub-divided, supply 
totals and an estimated percentage breakdown. 

6. "Specifir. — Certain data lines require that U.S. Reporters "specify" items 
included in the total for such lines. In all such cases, the U.S. Reporter should 
give the type and dollar amount of the items included in the line. 

7. Space on form insufficient. — When space does not permit a full answer 
to any question on the form, the information required should be submitted on 
supplementary sheets appropriately labeled and referenced to the question and 
the form's serial number. 

8. Filing date. — Reports shall be filed within 60 days after publication of the 
reporting requirements in the Federal Register. 

9. A.ssi.'itance. — If there are any questions concerning the report, phone (202) 

10. Numier of copies. — A single original copy shall be filed with this Bureau. 
In addition, each U.S. Reporter should retain a copy of his report. 

11. Where to send reports. — Mail all reports to International Investment Di- 
vision BE-50 (SSB), Bureau of Economic Analysis. 1401 K Street. N.W. (Tow- 
er Building), U.S. Department of Commerce, Washington, D.C. 20230. 


A. U.S. Merchandise Export and. Import Data 

1. Concepts and definitions. — (a) The phrase "Products of * * *" refers to 
merchandise which has been produced (i.e. grown, extracted, processed, as- 
sembled, or manufactured) by the entity named, or which has been changed 
by the entity named in some manner which results in an increase in the value 
of the merchandise. Merchandise which is shipped in essentially the same 
condition as when purchased is not considered a product of the entity shipping 
the For example, if the U.S. Reporter assembles widgets from 
parts purchased from others and ships the finished widgets to his foreign 
affiliate, the value of widgets exported should be included in the column la- 
beled "Products of U.S. Reporter (s) of this affiliate." If, however, the U.S. 


Reporter purchases the parts in the United States and ships the parts to his 
foi'eign affiliate for manufacture into widgets, the export value of the parts 
should be considered "Products of others." 

(b) The phrase "merchandise exports" or "merchandise imports" refers to 
the physical movement of merchandise between the customs area of one coun- 
try and the customs area of another country. 

(c) Shipments "by" an entity are physical movements of merchandise by 
that entity, whether or not the merchandise was charged to others by that 
entity. For example, if the U.S. Reporter charged merchandise to his foreign 
affiliate, but the merchandise was shipped by another U.S. person, the mer- 
chandise is considered "shipped to this affiliate by other U.S. persons." Also in 
cases where the merchandise is shipped by someone other than the U.S. Report- 
er, even though the U.S. Reporter assists in placing the order, the merchan- 
dise is considered merchandise shipped by others. (Note: Merchandise shipped 
by an independent carrier or a freight forwarder at the expense of an entity 
are classified as shipments "by" that entity.) 

(d) Shipments "to" an entity are physical movements of merchandise to that 
entity, regardless of who was actually charged for the merchandise or who 
ultimately received title to it. For example, if the U.S. Reporter charges $100 
worth of widgets to his Swiss affiliate Ivut actually ships the widgets to his 
affiliate in France, the trade entry should be on the Form B of the French 
affiliate only. 

2. Valuation. — (a) Exports: U.S. merchandise exports should be valued f.a.s. 
at the U.S. port of exportation. This includes all costs incurred up to the point 
of loading the goods aboard the export carrier at the U.S. port of exportation, 
including the selling price at the interior point of shipment (or cost if not 
sold), packaging costs, inland freight, and insurance. The cost of loading and 
all subsequent costs are excluded. 

(b) Imports: U.S. merchandise imports should be valued at the actual 
purchase-sale contract price agreed upon between the buyer and the seller, 
adjusted to a f.o.b. foreign-port-of-exportation basis. This excludes U.S. import 
duties, freight, and insurance from the foreign country to the U.S. port of 
B. Emploiimrnt and EmpJoijcc Compensation Data 

In addition to employment and employee compensation relating to current 
operations, employment and employee compen.sation data in this section are to 
be reported inclusive to those employees, and their associated compensation 
costs, who are engaged in an activity, the value of which is capitalized. 

1. Employtnent. — Total employment: Enter the equivalent to the average 
number of full-time employees for the year. Part-time employees should be 
included at the appropriate percentage of a full-time employee according to 
the proportion of total time worked. Seasonal employees or employees hired or 
employees hired or released during the year should also be included at the 
appropriate percentage. 

Total employment is then sub-divided into the following classifications : 

(a) Production workers: Production workers are those employees who are 
most directly connected with the actual carrying out of the activity of the 
business being reported, up to and including working foremen, but excluding 
otJier sui>ervisory employees. For mining, manufacturing, and farming they 
woidd be those involved in the physical production or handling of goods : in 
the trade and services industries they are the nonsupervisory employees en- 
gaged in selling, distributing, or performing a service ; and in the construction 
industry they are the working foremen, journeymen, mechanics apprentices, 
laborers, etc., whether at the construction site or in shops or yards. 

(b) Non-production workers: refers to all employees who are not production 
workers. These are further divided into the four categories shown below. 

1. Managerial employees. — are those employees who sjiend all or a majority 
of their time in management activities (excluding working foremen and 
managers of research and development work). 

2. Researeli and development .^eieuti.'^ts and engineers. — are all persons en- 
gaged in scientific or engineering research and development work, including 
managers, at a level which requires a knowledge of physical or life sciences 
or engineering or mathematics equivalent at least to that acquired through 
completion of n four-year college course with a major in these fields, regard- 


less of whether or not they actually held a college degree in the field (i.e., 
training may be either formal or by experience). 

Research and development includes basic and applied research in the sciences 
and in engineering, and design and development of prototypes and processes, 
if the purpose of such activity is to do one or more of the following things : 

1. Pursue a planned search for new knowledge whether or not the search 
has reference to a specific application. 

2. Apply existing knowledge to problems involved in the creation of a new 
product or process, including work required to evaluate possible uses. 

3. Apply exi.sting knowledge to problems involved in the improvement of a 
present product or process. 

Research and development includes the activities described above whether 
assigned to separate research and development organizational units of the com- 
pany or carried on by company laboratories and technical groups not part ot 
a separate research and development organization. 

3. Oth^r professional and teofmioal employees. — includes all professional em- 
ployees, and technical employees above the working supervisory level, not 
classified as "managerial employees" or "research and development scientists 
and engineers." This category should include, for example, scientists, engineers, 
accountants, lawyers, doctors, economists and other professionals not primarily 
engaged in line management or research and development. 

4. Other non-production workers.— all workers not included in the preceding 
three categories. 

2. Employee Compensation.— (a) Employee compensation: includes all pay- 
ments to and all other costs incurred on behalf of, or for the benefit of, all 
employees. Include cash payments, payments in kind, the cost of payment and 
non-payment type fringe benefits, and the cost of employee benefit plans, both 
those that are legally required and those that are voluntary. 

(b) Wayes and salaries: refers to gross earnings of all employees before 
deduction for employees" contributions to social insurance, withholding taxes, 
group insurance premiums, union dues. etc. Include payment type fringe bene- 
fits such as paid bonuses, dismissal pay, vacation and sick-leave pay, and com- 
missions ; and the cash equivalent of wages and salaries paid in kind. Exclude 
commissions paid to independent sales personnel who are not employees of the 
affiliate being reported. For incorporated afiiliates, include salaries of oflScers ; 
for unincorporated affiliates, exclude payments to proprietors or partners. 

Payments in kind of wages and salaries should cover the actual cost to the 
employer of goods and services furnished to the employee free of charge, or a.t 
a markedly reduced cost, which are clearly and primarily of benefit to the 
employees as consumers, such as free hou.sing and free food. Do not include 
in wages and salaries outlays which benefit employers as well as employees 
such as expenditures on amenities at places of work, employee training pro- 
grams, and reimbursements for business expenses. 

(c) Cost of employee benefit plans including both those that are legally 
required and those that are voluntary. All payments for plans required under 
law to be paid by the employer are included, such as employer contributions 
to social insurance funds. Voluntary plans include all plans not specifically 
required by law, whether initiated bv the employer or established as a result 
of a collective bargaining contract. Included are employer payments for such 
plans as group health and life insurance, private pension, supplemental unem- 
ployment compensation, deferred profit sharing, etc. If the plans are financed 
jointly by the employer, only the employer payments should be included. 

(d) Other labor costs: refers to all other payments and costs incurred on 
behalf of, or for the benefit of. all employees which are not included in wages 
and salaries or in the cost of employee benefit plans. Include costs of vacation 
and recreational facilities, employee training programs, in-house medical facili- 
ties, parking lots, discounts on employees' purchases, operating losses on com- 
pany-owned cafeterias, and similar costs. 

INfr. TTATivrAx. First, tlio maior delotions are in the area of em- 
plovment nnd oomnonpation : The iinmber of employees — talking 
about multinational corporntions. Mr. Chairman — prodnction work- 
ers, mana.o-erial nnd research and development employees with acrcrre- 
erate payroll costs for both domestic parents and foreitrn affiliates. 

56-957 O - 75 - 5 


This has been cut out. Somehow I suppose this is considered, I say 
this facetiously, subversive. Trade, references to trade, cut out, and 
the vahie of the products imported to the U.S. parent from foreign 

How can Congress make rational judgments on trade policy and 
what needs to be done with the multinational corporations. American 
multinational corporations, if they are not aware of the value of 
the imports to I^.S. parents from foreign affiliates. 

We have a continuing argument with multinational corporations 
as to what this figure means. The products in the trade area exported 
from the U.S. parent to its foreign affiliates and the affiliates local 
sales and their exports to third countries, all cut out. 

In the area of research and development, NiVC eliminated research 
and development expenditures, domestic and foreign including fed- 
erally funded R.&D. projects by the multinational parents. 

For example, we think it is relevant to know how much American 
multinational corporations are spending abroad in research and 
development and how much they are spending domestically. 

If, for example, they are spending an inordinate sum of money 
abroad and relatively little at home, what does this portend for the 
future of the American economy ? A terribly important and vital and 
simple fact that Congress needs to know. Government needs to know, 
and the people need to know. 

For example, they eliminated new capital investment in domestic 
plant and equipment, necessary to compare the firm's level of capital 
investment at home and abroad. 

One of the great arguments now goes on and I think in your open- 
ing statement you made reference to it as we consider the whole tax 

What kind of relief, if any. new relief, do American corporations 
need, multinational and domestic? 

If, for example, as we allege and I think rather well known and 
maybe the figure is too conservative, what was it in 1973? Was it 
$21 billion or thereabouts that American multinationals exported 
abroad; $21 billion. Having done this the same corporations are 
coming to Congress and to the American people and to the White 
House, urging that they need a new kind of tax relief because they 
don't have the money to spend in American domestic development. 
We need to know these facts and our Government doesn't know. 
Here they are, Government striking this from the list of questions. 

How can Congress make this determination? It will be making 
it in a dark room, and blindfolded in addition, because it won't know 
the true facts. 

Exploration and development expenditures for petroleum and 
mining operations, including depletion allowances, both parents and 
affiliates, domestic and foreign; these are stricken, too. 

How can we make determinations about energy policy if we don't 
know these fundamental facts? What kind of exploration is being 
made? "\Aliat kind of development expenditures? How much of it is 
being put abroad? How much in this country? If most of it, as I 
suspect, is going abroad and too little here, how do we catch up to 
what we all call the energy crisis? Is the only way to do it to make 


the cost of eiicroy so high that in the process people can't and won't 
buy it? Is this the answer? 

Senator ^NIetcalf. The people have to buy energy, though. 

]\Ir. Clatmax. I know they do. 

Senator Metcalf. It is the most necessary thing in running a home 
today, electricity. So the utilities have the last word. You go without 
almost anything but food in order to pay for the increased cost of 

]Mr. CEAY:\rAx. You see, you emphasize so succinctly the point I 
am elaborately trying to make, but without the information of what 
is happening, both in terms of American multinationals abroad and 
at home in tlie energy field in terms of exploration and deyelopment. 
how can we make rational decisions? 

So what happens is that we are reduced to making totally political 
decisions and political decisions more often than not are not yalid 

Finally, in terms of the items that are eliminated but are the 
most important items — income statements and tax data for U.S. 
parents, net sales or revenues, the Federal and State income taxes, 
the sales tax and Government royalties paid, all of these that go to 
the heart of any kind of a questionnaii-e — I don't know that it goes 
to the heart, they are so limited, really, even these are so limited that 
they may not get to the heart. 

They may get to the intestines or some place in the proximity of 
the heart, but not really to the core, but notwithstanding, I shouldn't 
look a gift horse in the face. 

They represent such an enormous advance that I should continue 
to shout hurrah, if they become the fact in government circles which 
they are not now. 

So that is a long answer to your pertinent question, sir. 

Senator Metcaef. Mr. dayman, the questionnaire that seemed to 
be so important and significant to determine and ascertain the infor- 
mation that we need had to go through the XAC. but did it have to 
go through OMB. too. as a part of the reports? 

INIr. Claymax. It is my understanding that after it goes to the 
NAC it goes to 0MB. That is a third step. It goes through a very 
elaborative sieve. 

Senator ]Metcaef. That is what Mr. Eeinemer calls double jeop- 

Mr. Clatmax. In this case, triple. There are three levels. 

Senator Metcaef. The questionnaire has a pretty difficult route to 
overcome all of these obstacles that\are placed in its way so that we 
can get the information. 

INIr. dayman, I think one of the things that I gathered from your 
statement that has presented a neAv outlook is we are concerned here 
in the Congress and in the Government about the balance of pay- 
ments and we try to have our exports balance our imports, and so 
forth, but we are not concerned about jobs. This export of jobs that 
you talk about is something that certainly we should have complete 
and authoritative information on. 

I really am not so worried about the balance of payments, Mr. 
dayman, as I am worried about jobs for American citizens. I think 


that probably that is the most important. I should have thought of 
that a long time ago. I probably should have talked to you about it 
a long time ago. 

Mr. Clatmax. From our point of view, I will state the obvious. 
I have said this before ; I will say it again, that without the job base, 
America can't exist. 

Senator Metcalf. We don't even know what we are doing. 

Mr. Clatman. No country can. We are riding a rudderless ship in 
this area. The main thing is, you will forgive me for kicking this 
around still more, the amazing thing is that the issue that you raise 
in your hearings broadened beyond just the agencies is about as im- 
portant for decisionmaking of Congress itself as any that I can 
think of, even though it sounds like arithmetic, mathematics — aca- 
demic — and yet I am fearful that Congress doesn't comprehend this. 

I want to compliment you, sir, for having this kind of perception 
because you won't get headlines on this. Yet, there aren't very many 
more important activities that any committee is being involved in. 
Forgive me for putting it on this personal basis. 

Senator Metcalf. If we had the information which you are talk- 
ing about, especially from the multinational corporations, what do 
you tliink we could do with it to increase and improve employment 
opportunities ? 

Mr. Clayman. You see, the information that we seek applies to 
the entire operation of multinhtionals, international and domestic. 
We see the American multinational, the world multinational as prob- 
ably one of the most significant forces in modern economy. 

"Wlien you consider that it has grown to a Goliath really in the 
course of about 12 or 15 years at the most, 51^ million, we say, jobs 
abroad, a loss of at least 1 million we say from 1966 to 1972. If this 
goes along unabated, then it is going to change our entire society. 

If this analysis, this very, very broad analysis, is solid, then ob- 
taining information that substantiates wliat I am trying to say is 
imperative to tlie T".S. Congress for its future action. 

We feel that American multinationals need to be abated : else 
they will consume our economy; else we will create a world force 
that will not be for peace. I am generalizing now, but if you see it 
in this perspective, the debate now is whetlier U.S. multinationals 
are the third or the fourth productive force abroad in the world. Is 
it the U.S., Russia and Japan? Or is it Japan and Russia? Then is it 
U.S., Japan or Russia second? Or is it American multinationals 
abroad third? Or are they fourth? 

That is not a happy choice, whether it is third or fourth. If this 
continues unabated, then we see this as supplementing a major part 
of the American work force. 

Then I think you ought to know more directly. Congress ought 
to know more directly, and ff it knows more directly, perhaps it will 
address itself with certitude. What is the tax set* up? Are we en- 
couraging multinationals as we believe they are being encouraged 
by a special kind of tax subsidy. Are they that important? Should 
the flight abroad be encouraged? 

If so, what does this do to our tax system and all the rest? This 
is very much of a generalization, but it indicates the depth of our 


Senator Metcalf. I must apologfize to you, Mr. dayman. I 
thought that perhaps you have been talking about this knowledgeably 
for quite a while, but" I think this concept of the jobs we are export- 
ing to get a balance of payments in dollars is a pretty-expensive way 
for us to balance or to have a trade balance. 

AVe should think about things other than dollars against dollars 
and we should talk about jobs in America as against jobs that we 
are sending abroad. 

That is the most significant thing you have told me today. I knew 
some of these other things. 

Mr. Clatman. In fairness, let me make an observation, a quick 
observation. The multinationals deny this vehemently. Each one of 
them has spent hundreds of thousands of dollars on individual so- 
called studies of their own. They deny this. 

We think they are utterly wrong. Indeed, we suspect that there is 
a great deal of"misre]u-esentation, but the important thing is some- 
body has to find out the truth because if your allegations are correct, 
we are in dire trouble and the only place is Congress, Government. 

Senator ]Metcalf. If they deny it and their denial is based upon 
facts that they can demonstrate, then there is no reason why we 
shouldn't have this information about employment, and so forth, that 
we have had in these questionnaires. 

If your allegations are true, then we should know about it. Infor- 
mation is the only thing we are after in this agency. If the infor- 
mation we give is incomplete or indequate or deliberately false or 
deliberately concealed, then our actions are not based upon sound 

I have other questions. We have witnesses and I was late. I would 
hope that both you and your staff and my staff will continue this 
dialog for a time because you have opened up some areas that I want 
to continue to explore. 

Mr. Clatmax. Thank you. Mr. Chairman; we appreciate your 

Senator Metcalf. Thank you so much. 
Counsel ? 

INIr. Ryter. "NAHiat is your background before you became Secre- 
tary-Treasurer, were you a researcher? 

Mr. Claymax. For all my trade union career. I have been trying 
to live down the fact that once upon a time I was a lawyer. 

Senator INIetcalf. I have been trying to live down that once upon 
a time I got a degree in economics. 

]Mr. Claymax. So I confess no^v that once upon a time I was a 
law^-er and became involved with the labor unions and later in ad- 
ministrative functions within the labor movement. 

INIr. Ryter. Are you aware of the research programs that go on 
at the Department of Labor? 
:\rr. Claymax. The what? 

]Mr. Ryter. Research programs funded through the Department 
of Labor? 

Mr. Claymax. Xo; I am not aware of those in detail, but I suspect 
my associates are. If they see fit to answer, please do. 

Mr. Ryter. If I could direct just a few questions, I wonder if your 

department is aware of the fact that a substantial amount of money 
is about to be forfeited in the Department of Labor in the research 
area just because of some of intransi<2;ence of the bureaucrats and the 
laziness of the department? Are you aware of that? 

]\fr. Claymax. I am not aware of it, but I suggest that specific 
case that I gave you indicates that whatever they spend can't be 
terribly fruitful if they are not prepared to ask the rational, reason- 
able questions that the bureaucrats have recommended. And I can't 
come to any other conclusion than that the leadership of those de- 
partments that are involved in NAC, perhaps even the White House. 
I don't know this, simply don't want these facts asked for. 

Mr. Ryter. Is either one of the gentlemen at the table familiar 
w^ith the treaty by which we have authorization to collect informa- 
tion on the balance of payments? The Bretton-Woods Agreement? 

Is either one of your counsel familiar with the Bretton-Woods 
Agreement and the limitations of the collection of data? 

Mr. Prosten. Let me take a crack at it. We don't see Bretton- 
Woods as a limiting factor. There are certain things set out in 
Bretton-Woods that are required — neither of us, by the way, enjoys 
the status of being lawyers. 

We can't hide that or claim it, but in looking through Bretton- 
Woods we see nothing that specifically limits the types of data that 
are being collected. There are certain minimnms that are set out for 
the parties who are signatories to the agreement that they must pro- 
duce in order to maintain the agreement. 

We see nothing that sets a top line. We see a bottom line, but not 
a top one. 

Mr. Ryter. Can I ask, additionally, did you mean to suggest in 
your testimony that the data that was collected previously in the 
1966 survey was in excess of what was agreed upon as a basic mini- 
mum in this more recent 1973 proposed survey? 

Mr. Prosten. What we suggested in our testimony was that there 
was more collected in 1966 than NAC was willing to allow last year. 
Both 1966 and last year were subsequent to the Bretton-Woods 

INIr. Ryter. Couldn't we ask that you put it in a further memo, 
noting which was allowed in 1966, and which was not allowed in the 
NAC proposal? 

Mr. Briax Turner. I have already got that drawn up. 

Mr. Ryter. I spent a great deal of time in the bureaucracy and 
found it a little Ijit confusing that a national advisory committee 
Avould act as an interagency function. 

Could you clarify that? You say in your testimony that there is 
a Cabinet level interagency committee, advisory committee, acting in 
an administrative or bureaucratic function. 

I was never aware that a Cabinet level committee, as one of the 
abilities, and it wasn't an administrative ability, could function in 
this capacity. Are you firm in your belief that this is a Cabinet level 
committee that acted to cut this out? 

Mr. Brian Titrner. I was in discussions with James Griffin, chair- 
man of the working committee of NAC that dealt with this matter 
back in October and November. The description Cabinet level, inter- 


agency committee, was his. I believe he was certainly in a position 
to know. 

Senator Metcalf. If you would yield, let's have the names and 
official designation of the members of the committee inserted in the 
record immediately at this point. 

[The information subsequently received follows :] 

U.S. Department of Commerce, 
The Assistant Secretary fob Economic Affairs, 

Washington. D.C., August 12, 1975. 
Hon. Lee Metcalf, 
T'.S. Senate, Washington, D.C. 

Dear Senator Metcalf : Pursuant to your request of August 6, 1975, I am sub- 
mitting two lists of names for inclusion in your hearing record. 

The first list comprises the members of the National Advisory Council on 
International Monetary and Financial Policies. Please note that Secretary Mor- 
ton was not Secretary of Commerce at the time the working group's deliberations 
took place. Frederick B. Dent was the Secretary of Commerce at that time. 
The list of NAG members is a follows : 

Frederick B. Dent, Secretary. Department of Commerce ; 
Henry A. Kissinger, Secretary, Department of State; 
William E. Simon, Secretary, Department of the Treasury ; 
Arthur F. Burns, Chairman, Federal Reserve Board ; 
William J. Casey, President and Chairman, Export-Import Bank. 
The following is a listing of the members of the "working group" : 
Treasury Department: James A. Griffin. Chairman; Fred Cutler; Walther 
Lederer ; Dirck Keyser ; Gary C. Hufbauer ; John Cambon ; Josef E. Herbert 
(NAC) ; Dennis O'Connell. 

Commerce Department : George R. Kruer ; Ida Mae Mantel ; John Bogumill ; 
and Milton Berger. 

Federal Reserve Board : Guy Stevens ; Sam Pizer. 

Office of Management and Budget : David T. Hulett. 

Agency for International Development : Norman Mosher ; J. de Melo. 

Export-Import Bank : Steven B. Kahn. 

Council of Economic Advisers : Laura Peterson. 

Council on International Economic Policy : Sheliaghmichael Hewitt. 

Sincerely, ^ ^ ^ 

James L. Pate, 
Assistant Secretary for Economic Affairs. 

Mr. Ryti<:r. I believe what you will find out is what you have 
citation to is an ad hoc interagency committee which may not have 
Cabinet level status and which really is not an advisory committee 
as much as it is an interagency discussion committee for the purpose 
of assuring that there is legislative authority to utilize this type of 
questionnaire or to ask specific questions of this type. 

Following on that, let me ask the question whether or not you are 
suggesting that there is a (Tovernment policv of some sort to limit 
the'amount of multinational information collected. 

One of the good things about your testimony, the thing that T 
really have to admire and speak out on, is that 99 percent of your 
testimony was directed toward establishing the need for this infor- 
mation by pointing out the great deal of uncertainty in analyzing 
the effects of multinationals. 

We just don't know the crround we are on. T think that far and 
awav, you have establi.shed beyond a reasonable doubt there is a 
need, a crying need for additional information of this sort. 

Ts it vour feelino: that there is a coverup of some sort? 

Mr. Clatman. I wouldn't use the word coverup. I don't know 


motivations. I have to beliove, rationally, that when a committee 
composed of top representatives of the various departments of Gov- 
ernment turn down, in my jndo^ment willy-nilly important, impera- 
tive questions to be asked of the American multinationals, shall I call 
it an error of jndirment? Shall T call it somethinfj else? 

Mr. Rtter. Let's make two different assumptions first. If it is de- 
termined that this was an act of bureaucrats, for instance, an act of 
GS-18s teams or whatever you want to call them, as opposed to an 
act of schedule C's, would you distinojuish in your own mind differ- 
ence in policy? 

Mr. Clatmax. Of course there mi^ht be differences. T am assumincr. 
and you have had more experience apparently in governmental agen- 
cies and departments than have I, I am assumintr that the top of the 
leadership certainly would be aware of actions of this nature and if 
they are not. I suspect they are somewhat derelict in their diities. I 
would think that these questions are relatively sensitive questions to 
jrovemmental afrencies because I don't think they consider these in 
the abstract or academically. They are there. They know what they 

T am assuming that the secretaries of those various departments 
are aware of that action. T would not consider this as a small activity 
in any of these departments because if you, as you sure do, know the 
power of multinational corporations and tlieir effective lobbving; ap- 
paratus, T am sure that the decisions were made knowingly. I am 
not sayine: maliciously. 

Mr. Ryter. Are you sujr^estine: that in a sense there was contact 
between the multinationals and this interagency task force? 

Mr. Clatman. T am sorry. 

Mr. Rtter. Are you suofsrestino; there is some sort of contact be- 
tween the multinationals or representatives of the different multina- 
tional firms? One of the thinofs that the minority 

Senator Metcalf. Let him answer. 

Mr. Ceatmax. No; if you are askinij me to allege that there is a 
deep conspiracv, another Watergate, T am not prepared to do it. T 
don't even know the principals involved personally. My associates 
know some of them : I don't. 

T am just prepared to say that this is more than passing strange. 
Tf an issue of this importance escapes the scrutinv of the top leader- 
ship of each of those departments and if it did, then T say it is also 
commentary on the kind of direction those departments are getting. 

Mr. Rtter. T think that is probably more relevant. 

What is tlie current status? Ts it youi" understanding that there 
has been further movement on this in the Department of Commerce? 

ISIr. Ceatmax. T am afraid you will have to repeat it. T am getting 
a muted sound from you. 

Mr. Rtter. Ts it your understanding that there has been anv, or do 
you have an understanding as to Avhether or not there has been any 
further action on the part of the Department of Commerce to either 
renew, revive the questions or the authoritv under which they are 
seeking the survev? 

Mr. Ceatmax. T am told by my associates that the BEA declined 
to carry out the study after these important questions were elim- 

inated because it wasn't worth the expenditure that it required. Tlie 
information they would receive would be relatively worthless. 

Mr. Ryter. The information coming to me this morninjj indicates 
that the department may have individuals within the BEA who may 
have requested the Secretary for additional legislative authority to 
pursue this matter in statistical form. 

In that case, that would indicate — just for the record, and T think 
we can try to have that verified. 

One final question: Have the industrial unions of the department 
taken a stance against multinational investments? 

Mr. Clatman. You don't know what you are asking for. You are 
asking for a speech. 

I will make it quick, but it can't be perfunctory. We have not been 
against multinationals, per se, across the board. We have been for 
rationalism of their operation. We have always had some small, for 
many, many years, some small multinational operations abroad. 

In its present form, it has gone wild. It is the expression that I 
heard the other day, the rogue elephant in the last 12-15 years. It is 
this unrationalized, uncontrolled pell-mell rush abroad which worries 
us intensely. 

For the foreseeable future, I think the American labor movement 
will be heard often and loud on this issue. 

Mr. Ryter. I think they should be and I think as the chairman 
pointed out in your testimonv that the creation of the jobs in Amer- 
ica today. I think it is one thing we can certainly join together on. 

Thank you very much. 

Senator INIetcalf. Mr. dayman, thank you for a most interesting, 
educational testimony and, of course, your testimony is up to the 
usual high level. You have probably inspired the committee to go 
into other areas. 

I am going to ask that your staff work with Mr. Reinemer and 
have a little introductory statement of just what the industrial union 
department does and how it was created, and the background of the 

[The information referred to and subsequently supplied follows :] 

Functions of the Industrial Union Department, AFL-CIO 

The Industrial Union Department serves the AFL-CIO unions with member- 
ship in the industrial sector of the American economy. Founded at the merger 
of the former AFL and CIO. its affiliates now comprise 59 international unions 
representing over six million workers. The department provides diversified 
services to its affiliated unions in such fields as organizing, collective bargain- 
ing, legislation, research, and occupational safety and health. Its officers are 
President I. W. Abel, who is also president of the United Steelworkers of 
America, and Secretary-Treasurer Jocob Clayman. 

Jacob Clayman, Secretary-Treasurer, Industrial Union Department 

.Jacob Clayman was born in Boston, Massachusetts. After spending his boy- 
hood in Boston he moved to Niles, Ohio. He attended the Niles public .schools 
and graduated from the town's high school in 1923. 

He went to Oberlin College in Ohio and graduated in 1927. Following gradu- 
ation from Oberlin he attended the University of Michigan l^aw School, taking 
his law degree in 1930. 


After being admitted to the Michigan Bar, Mr. Clayman practiced law in 
Detroit. He then obtained employment with the federal government, later 
leaving to become a member of the Ohio Bar and to practice in that state. 

Both his interests and his law practice brought him into contact with the 
labor movement, especially the new industrial trade unions in Ohio. In 1941 
he was elected Representative from Trumbull County to the Ohio Legislature. 
In 1943 he became general counsel to the Ohio State CIO. 

Mr. Clayman was elected full-time secretary-treasurer of the Ohio State 
CIO in 1948 and served in that post until the year of the AFL-CIO merger 
in 1055. In that year he was named special assistant to the president of the 
Amalgamated Clothing Workers in New York. 

In 1958 he returned to Ohio where he took an active part in labor's success- 
ful fight against a proposed "right-to-work" law. He then served the Ohio 
State AFL-CIO as legislative representative before the State Legislature 
and was associated in law practice with his brother, David, in Columbus. Ohio. 

Early in 1960, Mr. Clayman was designated as the administrative director 
of the Indu.strial Union Department, AFL-CIO. This department is the center 
of the industrial unions within the AFL-CIO and counts its affiliation at ap- 
proximately 7 million members. He was a member of the Federal Advisory 
Council on Employment Security ; he was a trustee of the United Community 
Funds and Councils of America, Inc., and w'as the founding president and is 
now a vice president of Consumer Federation of America. He was also chair- 
man of the National Civil Liberties Clearing House, and a member of the 
Board of the Leadership Conference on Civil Rights. He was elected secretary- 
treasurer of the Industrial Union Department, AFIv-CIO in September 1973. 

Mr. Clayman has written many articles and pamphlets on the subject of un- 
employment compen.sation. workmen's compensation and other kindred special 

Mr. Clayman. My apologies to the witnesses who are to follow, Mr. 
Chairman. I have very poor terminal facilities and I have exempli- 
fied it again. Thank yon. 

Senator Metcalf. Yon don't have to apologize to anyone. Thank 
you very much for coming. 

[The prepared statement of Mr. Clayman follows:] 

Prkpared Statement of Jacob Clayman, Secretary-Treasurer, 
Industrial Union Department, AFT^CTO 

Mr. Chairman and members of the subcommittee, my name is 
Jacob Clavman. T am Secretarv-Treasurer of the Industrial TTnion 
Depai'tment, AFI^CIO. The JrT> is a Department of the AFI^ 
CIO, with 59 affiliates that repiesent some six million working men 
and women. The bulk of our activity is in the pursuit of programs 
to enhance the jobs and working conditions of these union members, 
although we also attempt to further their interests as consumers, 
taxpayers and citizens. 

As we understand it, the current hearings are to assess the suffi- 
ciency of data on which government regulatory decisions are based, 
and how the accuracy, adequacy and availability of this data might 
be improved. We appreciate this chance to appear before your Sub- 
committee and share with you our feelings on the inadequacies of 
information flowing from governmental agencies. 

We realize that the federal regulatory svstem is currently under 
great attack. It would appear that the President of the United 
States is fashioning a campaign to emasculate much of the good 
that these agencies do accomplish. Clearly, there are some instances 
of over-regulation. But all too frequently, there is too little regula- 


Both of these situations flow from the fact that the Administra- 
tion has stacked these ap;encies with people whose interests seem to 
lie more with the entities they are supposed to regulate than with 
the public they are supposed to protect. 

We wish to call to your attention a variety of situations in which 
we feel the government's performance in the field of data gathering 
is totally inadequate. Since the executive departments have not seen 
fit to compile the sorts of data that we feel are needed, it seems 
appropriate to ask that the regulatory agencies try their hand at it. 

Primarily we are concerned with the lack of hard data in regard 
to employment. We do not mean the sorts of aggregate data about 
how many people are working and how many people are collecting 
unemploj'ment checks which the Department of Labor issues. Rather 
we need figures indicating how^ and why people have become unem- 
ployed; where work opportunities are climinishing or vanishing: 
what industiies are suffering or are likely to suffer substantial non- 
cyclical unemployment ; and various offshoots of such approaches to 

It seems to us that economic data collection in this country is quite 
unresponsive to some of the very obvious and most pressing neecls 
of our citizens. In many cases where important data is collected it is 
terribly out of date by "the time it is put into the hands of those who 
need it to shape national policies. 

If we review the economic issues that have achieved crisis status 
in this country over the last decade or so, we find that in an amazing 
number of cases, we were told that "nobody knows" the true serious- 
ness of the problem or how to fashion solutions because there was 
not sufficient information. 

Clearly, it would be unreasonable for us to expect the iminediate 
availability of data concerning every aspect of every contingency 
that may occur in or to a country as vast and economically complex 
as ours. But we feel there are certain areas which cry out for atten^ 
tion. We don't really care which agency or department does the data 
collection, but we do care that it be collected, analyzed and quickly 
made available to Congress and the public. 

The sorts of data with which we are most concerned — because they 
are so totally unavailable — are those that would give us a handle on 
problems — ciirrent and potential — that affect jobs and employment. 

Our example of what we're talking about was quite noticeable dur- 
ing the fuel crisis. Despite the elaborate budgets of a host of agencies 
and departments that collect data, nobody could find out how many 
people were put out of work, or forced onto reduced workweeks, as 
a result of this situation. The closest that we had to an answer 
was based on what new applicants for unemployment insurance indi- 
cated on their applications as the reason they thought they were now 
unemployed. This approach was not only unscientific but imaccept- 
able as a method of understanding the effects of then current eco- 
nomic developments. It was based on the potentially subjective per- 
ceptions of insurance applicants. Of course, the perceptions of those 
who were ineligible for unemployment insurance were not counted 
at all. 

Parenthetically, it was equally disturbing that seemingly nobody. 


in or out of government, could tell us how much petroleum was 
available — either on top of or beneath the orround. 

Both the jobs question bothered us the most, for it reminds us of 
just how inadequate and anaemic our society's base of knowledge in 
this area really is. It reminded us that for many years the labor 
movement has been pleading for that kind of data — data that would 
enable planners and policymakers to more successfully factor the 
jobs and thus the welfare "of working people into their actions and 

The issue of jobs — job loss, job creation and the like — comes up 
again and again as this country becomes aware of the growing im- 
pact of multinational firms on "our economy. For a number of years 
now we have felt that American jobs were being shipped abroad at 
an alarming rate. 

The multinational enterprises and their friends insist that we are 
wrong — that, in fact, this process has created jobs in our economy. 
We still think we're right, but desipte intense interest in the subject 
on the part of many sectors there is no body of date that can be used 
to prove or disprove our allegations. 

Collecting reliable information and subsequently pursuing mean- 
ingful economic analysis on foreign direct investment — both inward 
and outward — is essential to the economic well being of this country. 
The American people and the American Congress have a right to 
this information. 

Overseas production by the controlled foreign affiliates of U.S. 
multinational firms is now 31/2 times larger than either U.S. imports 
or exports; it now totals roughly $350 billion per year. Projecting 
from the most recent Commercial Department estimates (made for 
1970) , U.S. multinationals' overseas employment should not be over 
514 million — just over the average imem'pJoyment in the United 
States during the calendar year 1974. 

In this rapidly changing situation, where multinationals expand 
abroad as the domestic economy languishes. Congress has a duty 
to see that all necessary information is collected and that the eco- 
nomic analyses that depend on these statistics are responsibly car- 
ried out. Study after study in this area is forced to conclude with an 
apology for the tentativeiiess of its results — because the underlying 
economic statistics are too weak to provide solid analytical conclu- 
sions. We won't take up your time listing the various individuals 
and organizations who have lamented our government's irresponsi- 
bility in this area, but there are many respected experts who would 
certainly welcome more responsible data gathering and analysis. 

On outward direct investment by U.S. multinationals — an issue of 
great concern to us and, we believe, to the Nation — the administra- 
tion's recent record on data-gathering has been less than laudable. 
In this regard, we would like to bring to the attention of this sub- 
committee the dismal history of what happened when a responsible 
agency of the Department of Commerce attempted to improve its 
data collection on U.S. -based multinational firms. 

The Bureau of Economic Analysis, Department of Commerce, 
has responsibility for gathering and assembling primary economic 
data on the foreign operations of IT.S. multinational firms. Their 


last benchmark survey was conducted in 196G, and they publish 
annual updated estimates on the basis of voluntary survey forms 
sent out to a small sample of the known universe of American 
multinational corporations. 

As the multinationals' overseas activities increased, the Bureau 
of Economic Analysis recognized that their previous benchmark 
census had become "hopelessly outdated, and that the ranjre of in- 
formation covered in the last benchmark was seriously inadequate 
to deal with uro:ent analytic and policy needs. 

In late 1972, the specialists at BEA be^an their own preliminary 
analysis of topics that should be covered in such a study, and thev 
devised draft survey forms to be sent out to U.S. multinational 
parent corporations and their foreign affiliates. 

When this process was completed, the proposed forms were sub- 
mitted for approval to a Cabinet level interagency clearing com- 
mittee, the- National Advisory Committee on International Mone- 
tary and Financial Policy (N AC)— composed of representatives 
from Treasury, Commerce," the Federal Reserve Board, the Export- 
Import Bank", and the Department of State. The proposed bench- 
mark survey was handled at the National Advisory Committee by 
a working committee chaired by James Griffin of Treasury. 

The proposed BEA survey would have expanded the scope of the 
data collected in 1966 and in subsequent sample surveys. For the 
first time they would have asked for detailed information on em- 
ployment, skill levels, and employee compensation at home and 
abroad ; on the cost and location of" research and development activ- 
ities; on production by product line; on taxes paid into different 
jurisdictions at home "and abroad; on transactions between parent 
and affiliate; and on the treatment of domestic and foreign opera- 
tions in the income statement of the parent firm. 

This was not. in our view, an exhaustive list of what we needed 
to know about I^.S. multinationals. It would have been far inferior 
to data presently collected on comparable domestic activities. It 
would, however, have represented a significant improvement over 
the data on multinationals presently gathered by the Federal Gov- 
ernment. It would have fulfilled iieeds recognized by all users of 
data on multinational corporations, and the BEA understood it as 
necessary for responsible analysis and rational policy evaluation. 

The reception given to this vitally needed expansion of our 
fundamental data base on multinational corporations was startlingly 
negative. The NAC rejected every item on the survey form that 
was not strictly related to balance of payments accounting — on 
the interpretation that the Bretton-Woods enabling legislation al- 
lows only balance of payments reporting. We call this a "strange 
interpretation" because even the weak analytic data that had been 
collected in 1966 — without any challenge "as to its legality — was 
now ruled out of order. Everything having to do with research and 
development, with the breakdown of production figures, with em- 
ployment, skill levels and compensation, and even with trade be- 
tween the multinational parent and its foreign affiliates — all that 
and still more was cut out of the proposed survey by this Cabinet - 
level interagency committee. 


We find it hard to beliovo that such obstructive action, aj^ainst 
the sound initiative of a hio;hly professional Federal ap:ency, could 
represent anythinp: other than hirjh Administration policy. Some- 
body up there doesn't want to know — or doesn't want the ]niblic 
and the Conojress to know — the true facts about the multinational 
corporations and their effects on the domestic economy. This scan- 
dalous situation cannot be allowed to endure. 

We think the record of failure to resj^onsibly provide the public 
and the Cono;ress with accurate, up to date information on multi- 
national investment speaks for itself. 

At issue here is our ability to analyze* the makeup and operation 
of the hu<re multinationalized sector of the U.S. economy v»hich, 
to date, has been kept hidden from responsible economic and social 
analysis. The Nixon-Ford Administration has blocked attempts at 
monitorinjr the activities of T'.S. -based o-lol)al firms. The multina- 
tional sector is too lar^e and potentially too damafjin^ a part of 
the American economy to remain behind the veils of corporate 
confidentiality. If rational policies that can strengthen the domestic 
economy are to be implemented, we must have reliable data on the 
multinational sector and its siofnificance in our economy. We must 
place particular emphasis on the employment aspects of the ques- 

But let us returii to what is seen as aii essentially domestic issue. 

Tn the late lOGO's, this Nation belatedly beo-an to look into envi- 
i-onmental quality — both on and off the job. From that time until 
this very day — and, I guess it will be true for years to come — 
spokesmen for industry have told everybody they could find that 
even modest environmental standards would mean the closinp; of 
many industrial facilities and the loss of untold thousands of jobs. 

Despite industry's dire predictions, we've been unable to identify 
any siofnificant number of plant closings in which safety, health 
or environmental requirements were even alleged as reasons for the 
action. And in those few cases where such causation was cited, we 
were rarely able to verify the claim. 

We believe that safety, health and environmental questions will 
be with us for many years to come. We think that it is in the 
national interest to study, as completely as possible, the impact to 
date, as well as the potential future implications of such legislation 
and standard-setting on jobs and employment. Only with solid in- 
formation in hand will we be able to look at these serious problems 
without being subjected to unverifiable polemics. 

We've given you a few examples of areas where jolvrelated data 
is needed and where presently available statistics are totally inade- 
quate for national policv planning or response. 

This inadequacy is not a recent discovery for us. For many years 
\ye have sensed that the absence of data alonir these lines was pain- 
fully apparent. We searched every conceivable agency, bureau, de- 
i:>artment and what-have-you to try and find out what was happen- 
ing to the jobs of our members and in other sectors of the econ- 
omy as well. We were unable to locate any source that could tell 
us such things as : 

What sorts of industries are experiencino- employment declines 
and why? 


Have there been significant shifts in the traditional geojrrapliic 
patterns of plant installations of jiiven industries or companies— 

and why ? , , ^ -i .. 

What identifiable patterns tended to surround the curtaihneut oi- 

closing of facilities? . . 

To be sure, we had some hypotheses about such situations. \\ e 
assumed that the "conglomerization" of the T^.S. economy during 
the 1960's was destructive of work opportunities. We assumed that 
the tax incentives supplied bv certain of the States and the anti- 
union attitudes that frequently characterize these same areas were 
responsible for the destruction of historical employment opportu- 
nities. . . . ,. „ 

We also wondered about the increasing "multinationalization ot 
the U.S. economy. We wondered how many domestic employment 
opportunities were being lost to a combination of the tax incentives 
for job exportation provided by both our Government and host 
governments and the availability in some countries of heavily co i- 
trolled labor forces. 

At any rate, in our own modest way we undertook to compile 
a listing' of incidents of plant closings and curtailments. We sought 
reports from unions affiliated with our organization, combed finan- 
cial journals and other periodicals and cadged information from 
wherever we could. 

Such an approach, obviously, is not totally scientific and we rec- 
ognize that it is far from perfect. But as far as we know, it's the 
only ball game in town. National financial analysts, committees 
of Congress and various government agencies frequently come to 
us because they are interested in exploring one or more of the areas 
addressed in our survey. 

While we are always pleased to share the results of our work 
with other investigators, we do so with great embarrassment about 
the inadequacv of our data. Because of the make-shift ways in 
which we collect it, we cannot be sure of how representative it is 
of occurrences in the economy at large, nor can we be sure that 
the sources we have used are correctly reporting the information 
that we plagiarize from them. 

As of the beginning of 1975, our system had been in operation 
for four years. In that time span we had noted 1.701 situations in 
which jobs were permanently lost. Almost 1,300 of these cases rep- 
resented permanent plant closings, while another 400 represented 
permanent curtailments. Xone of these instances involved short- 
term layoffs caused by economic- fluctuations or other temporary 
events. We did not receive complete information on every reported 
situation but where we did, we discovered the following: 

Less than 3 percent of the cases reflected claims that health, safe- 
ty or environmental controls caused the action. 
' Approximately 25 percent of the closings and curtailments were 
related to the impact of foreign competition and they accounted 
for some 32 percent of all jobs lost. 

The average foreign competition related closing involved 370 
jobs lost and the average such permanent curtailment involved 559 


Another major reason for closings involved domestic relocations, 
most typically to low-wage, less urbanized areas. In these cases, 
an average of 262 jobs were lost in closings and 298 m permanent 
curtailments. . 

When we expand the information covernig cases where we have 
complete data to all of the situations of which we are aware, we 
find that we can account for a loss of almost 500,000 jobs, of which 
150,000 can be related to the pressure of foreign competition. 

As I said earlier, we are aware of the very great limitations of this 
data but at the same time we are frightened by what it seems to 
suggest. Is it not the sort of data that this Congress and this Gov- 
ernment should cause to be collected with precision so that it might 
be at hand as the important economic issues of the day are con- 
sidered? .... 

Perhaps our data is not representative of what is going on m 
the economy at large, but only a well-funded and skillfully imple- 
mented study will be able to resolve that question. 

Mr. Chairman, members of the Committee, we realize that we 
may have deviated a bit from the precise topic of these hearings, 
but feel that it is important to get on the record with our concern 
in these areas. These items strike us as ones that contain informa- 
tion which investors would need in order to deal in the stock mar- 
ket more effectively. Perhaps it is information which could be most 
readily collected by an agency such as the SEC. 

We are not really too particular about who does the work, al- 
though we would w^ant to mal^e sure that it was done competently. 
As a nation we must put ourselves in the position to make rational 
economic policy on the basis of information rather than guesses. 
We must develop data that will alert us to potential employment 
problems before they become fatal ailments. 

The data collection advances by the independent regulatory agen- 
cies (empowered by the Hart amendment to the Alaska Pipeline 
Act and outlined in the model reporting requirements) are steps 
toward more comprehensive reform of Federal data collection. In 
the not so distant future, piecemeal reforms in Federal data collec- 
tion will have to give w^ay to a more systematic, coordinated ap- 
proach. To date, this lack of coordination in Federal data collection 
has led to such things as: incompatible information series; major 
gaps in the information that is collected; and inefficient and arti- 
ficial barriers governing exchanges of collected information between 

While information gathering has increased in scope, the differ- 
ent agencies too often gather their data on incompatible definitional 
bases. This makes it difficult for analysts, both in and out of the 
government, to compare related sets of data. For instance, our in- 
formation on production, sales, employment, and wages, is collected 
by industry according to the Standard Industrial Classification 
(SIC's). But our import and export data are gathered according 
to the substantially different categories of the Tariff Schedule of 
the Ignited States (TSUS). As a result, the depth of import pene- 
tration or export-related employment are often impossible to calcu- 


In addition to those definitional inconsistencies, there arc impor- 
tant areas where data are inadequate oi- not collected at all. We've 
mentioned a few of these this morning. 

Alongside the missing information and the incompatible statis- 
tics, we see a third problem area: a lack of imagination in using 
existing data to derive additional needed data. One area that comes 
to mind immediately involves the foreign operations of IT.S. global 
corporations and their impact on domestic production and employ- 
ment. One branch of the Federal Government, an agency of the 
Commerce Department, has more or less adequate knowledge of tly 
identity of U.S. multinational corporations; this information is 
stored on computer tape. But the Commerce Department has no 
current information on these firms' employment. The Labor Depart- 
ment, on the other hand, through the Bureau of Labor Statistics, 
has records of domestic employment patterns for the larger individ- 
ual firms; and these records, too, are stored on computer tape. 

It would be a relatively simple matter to run these two sets of 
information against each other and thus discover at least the domes- 
tic employment performance of TT.S. -based multinational corpora- 
tions. Such a procedure would be inexpensive. It would require no 
change in present reporting requirements, nor would it threaten 
corporate confidentiality in any way. Yet, under present arrange- 
ments, these two tapes cannot be bought together, and these impor- 
tant questions remain unanswered. 

A few such information gaps can be closed quickly by utilizing 
currently gathered data. But in the longer run, our whole system 
of data collection will require streamlining. By eliminating uimec- 
essarily overlapping and duplicative reporting, we could have more 
and better information, while significantly reducing the costs of 
data collection and reporting. 

Mutually consistent data bases must be established, and existing 
information gaps must be closed, especially with regard to energy 
and the overseas opei-ations of I^.S. multinational corporations. 

We recognize, of course, that such an overhaul of the Federal 
data gathering system is a long-term project. Yet the Congress can 
take some steps toward that future consolidation and streamlining 
without delay. 

A first step would be an assessment of the present diverse pro- 
grams of Federal data gathering. Wlrat questions are being asked, 
and by which agencies? What are the rules governing interagency 
exchanges of data? A comprehensive survey of present data col- 
lection will be essential for arriving at a more coherent, less costly 
system for the future. Such a necessary preliminary study could 
well be carried out by the GAO or the Congressional Research 
Service at the request of this Subcommittee. 

Parallel to this exhaustive determination of what is now happen- 
ing in Federal data collection, future reforms will require the 
careful consideration of alternative approaches to more comprehen- 
sive and coordinated data collection. There are many questions to be 
addressed : 

What are the most promising conceptual structures for organiz- 
ing industry data on a common basis? 

56-957 O - 75 


What is the range of possibilities foi- facilitating interagency ex- 
changes of information? 

How do we establish standards of confidentiality and protect 
against their abuse in such a comprehensive data system ? 

As the Congress implements the many needed reforms of our in- 
efficient data gathering system, these questions should be systemat- 
ically explored and answered. 

In closing, I would like to endorse an idea that appears in the 
testimony of Dr. Abraham Briloff before the Senate Banking Com- 
mittee on July 11, 1975. Dr. Briloff, a certified public accountant 
and professor of accountancy at the City University of New York's 
Baruch College, urged the creation of "a Corporate Accountability 
Commission to assume the overarching responsibility of identifying 
the total informational needs of our society " * * regarding our 
corporate enterprise and to see how this information can be best 
accumulated, digested and disseminated. Failing such a unitary 
trust I can see the present segmented, limited scope and responsi- 
bility as producing intensified conflicts within government, and an 
inadequate and inefficient response to the fair informational require- 
ments of our modern democratic society =!= * * one which requires 
the delegation of enormous power and responsibility which, in turn, 
demands a reciprocal measure of accountability to those who have 
delegated the power." 

Senator Metcai.f. We have a vote at 12 o'clock. We have a vote 
at 1:15. 


The next witness is Mrs. June Allen. 

Do you want to start testifying, INIrs. Allen, and have us recess 
at 12 o'clock to 1:30; or do you want to wait until 1:30 to testify? 
I am going to hear the witnesses today. 

Mrs. Allen. I would like to do as much as I can. We would 
like very much to depart Washington at 3 :30. 

Senator Metcalf. Let's hear you until five lights come up, be- 
cause I know you have some important testimony. I am delighted 
to have you here. 

Mrs. Allen. I am not sure I am up to competing with the con- 
struction noise. 

Senator Metcalf. I want to emphasize one of the things that 
Mr. dayman said where he pointed out that less than 3 percent 
of unemployment cases, permanent unemployment, resulted from 
health, safety or environmental controls. T know you are going to 
talk about that same sort of situation. I welcome you here. I am 
delighted that you could come. I hope maybe we can complete our 
testimonv before we have to recess. 

Mrs. Allen. We will try. Thank you very much. 

Can you hear me? 

Senator Metcalf. I am sorry about the carpentry work. I came 
to Washington some 20 years ago and tliey have been building or 


rebuildiiifr or constructing or reconstructing everything ever since 
I have been here, and I have no hope that everything will be fin- 
ished before I leave. Thank you. 

Mrs. Allen. I will try to speak above it. Please let me know 
if you can't hear me. Thank you for your kind remarks. 

My name is June Allen. I am most appreciative of your invita- 
tion ^to testify as representative of the North Anna Environmental 

By way of brief background, I would like to tell you that the 
coalition 'was formed in" January 1973 by citizens of central Vir- 
ginia who were concerned that despite the serious and still unsolved 
problems of nuclear technology, and I am sure you know that chief 
among those are untested and unreliable emergency core cooling 
systems; lack of safe disposal for highly toxic radioactive wastes; 
and genetic and carcinogenic risks from cumulative low level radia- 

Despite this, plans were proceeding for one of the largest nuclear 
plants in thejvorld, four reactors totaling 4000 megawatts, in Min- 
eral, Va. 

I have a map to show you that this is not just a matter of 
academic interest because 'the North Anna plants are just 70 
miles from Washington and 40 miles from Richmond. They are 
right in central Virginia and Washington is in the radius of risk. 

Senator Metcalf. You are going to leave that map so we can 
put it in the record? 

Mrs. Allen. Yes. 

Every effort by the coalition on behalf of safety has met with hos- 
tility from Federal and State decision-making bodies. 

Of this quartet of 1,000-megawatt reactors. No. 1 is now 80 percent 
complete and No. 2 is 55 percent complete. Construction permits 
have been issued for reactors 3 and 4, and their excavations were 
dug in 1973. 

It is these excavations that put VEPCO's North Anna Power 
Station on front pages here and abroad — for they revealed a major 
fault zone cutting the ground directly beneath the nuclear site. 

They forced the AEC and VEPCO to a disturbing but inescap 
able conclusion about reactors 1 and 2: over half a billion dollars' 
worth of complicated, temperamental, still-being-invented nuclear 
technology had been placed not only near, but directly astride a 

The North Anna fault is wet. clay filled, and surrounded by rock 
so fractured that stress measurements are impossible. Independent" 
geologists shake their heads and say, "Why take such a chance?'' 

I brought some photographs that I thought would dramatize 
the situation for you, so you could see this scar or wound in thf 
earth. This is the excavation for reactor 3. You can see the wet 
fault and the rock bolts holding the highly fractured surface nearby 

[A reproduction of the map and photograph referred to follows :] 





Torth Anna Reactcr urder ecns Inaction 
loomB above '"ault vialbiC In excava- 
tlcr for Re-'CtcT i 


Mrs Allen. Then this photograph, a closer view of the fault 
itself with the reactor No. 1 loominaj above it m the background. 
Those pictures just returned from Tokyo. They were borrowed tor 
a broadcast there where people are worried about the relation of 
faults to nuclear reactors. 

Responsible Congressmen must ask how such incredible siting 
and construction could have been allowed in an industry and tech- 
nology we are told is so carefully regulated. 

Did the regulators fail to gather vital information, or, once gath- 
ered, fail to act upon it? 

Your committee has already posed two central questions: 

One: How good is the data upon which regulatory decisions are 
based ? 

Two: How can it be improved? 

These questions would seem to reflect a basic idealism and belief 
that timely and accurate data must necessarily result in wise 

Coalition study and experience since 1973 suggest that you should 
add— and carefully ask— the following questions in regard to in- 
formation management by regulatory agencies: 

One. Are there strong working assumptions that could cancel 
out new scientific data or soft pedal substantial scientific ignorance? 

The strong working assumptions in the North Anna case were 
that nuclear power is highly desirable, and that geology is no 
problem in the East. Thus, the easy approval for this giant site even 
though both AEC safety evaluations— 1070 and 1972— carry the 
statement: "Details regarding either local or regional (geological) 
structures are very poorly known." 

In 1974, an Atomic Safety and Licensing Board ruled the North 
Anna site safe, despite the following admissions of ignorance by 
the AEC staff, and I think the record will support these. 

The extent of the faulting beneath the reactors is not known. 

The extent of faulting beneath the dam and Lake Anna is not 
known, and that is key, as I am sure you know, because the water 
at artificial Lake Anna provides the cooling for the reactors, most 

Accurate rock stress measurements are not known. 

The date of last fault movement is not known. 

The probability of fault lubrication is not known. 

Mr. Turner. Mrs. Allen, I Avonder if you might say what indica- 
tions there are with respect to lubrication? 

Mrs. Allen. There is a phenomenon discovered in Colorado when 
they were putting fluids into the earth and discovered that they 
could reactivate faults and create their own earthquakes by adding 

So there is this possibility of increasing tlie load, of lubricating 
the fault and causing a previously inactive fault to become active. 

I believe the AEC seismologist stressed that this is not a func- 
tion of age. One of the major arguments in defense of the site has 
been that this is a very old fault, luit the possibility of reactivating 
a fault by lubrication is not a function of age. 

Going on, the competence of rock beneath units 1 and 2 is not 


Senator Metcalf. What is competence of rock? 

Mrs. Allen. Simply how sturdy it is and whether it really is 
unfractured enough to support the reactors in the way that they 
need to be for the fragility— if that is the right word— of the 
equipment that they contain. 

Last, which sounds innocent enough, the relation of the North 
Anna faulting to regional structures is not known. This seems to 
be of most concern to geologists because if the North Anna fracture 
is just a little crack, it is a small problem. 

But if it is related to major geologic structures and there are two 
that are of concern, one is called Neuschel's Lineament and the other 
is called the 38th Parallel Fracture Zone. If there is a relation 
between the North Anna fault and these then we may have major 
geologic structures that should be explored and thought about. 

Then, ironically, as a footnote, the American Nuclear Society 
maintains that reactors are not sited in fault zones. 

The coalition believes that were this site suddenly bare of $750 
million worth of construction and its shattered rock to be viewed 
by conscientious engineering geologists who were free of the work- 
ing assumptions of the sixties, it would be rejected out of hand. See 
attachment 1.^ 

Two. Is there resistance to any negative information which might 
challenge the strong working assumptions? 

I would like to make two corrections on this page, if I may, be- 
fore proceeding. 

In the second paragraph under the second question I would like 
to delete AEC. Then seven lines beneatli that, six lines beneath that, 
change the wording "of" to "in," but the wording "in" the AEC 
safety evaluation shows, and then delete "regulatory agency." 

Is that clear? 

It appears from the North Anna case records, that from 1968 
on, studies of the site revealed suspicious symptoms that the site 
might be ailing with fault sickness : Extensive jointing, stability 
problems, chloritic slick inside, collapse of the side walls of the 

What was the thinking in the site analysis branch where these 
reports were read? Nothing happened. 

We have some insight into the thinking regarding VEPCO's 
Surry nuclear site on the James River near Newport News, Va. 
Since 1945, there have been recurrent disturbing suggestions in the 
geology literature of the nearby Hampton Roads fault — the latest 
suggestion coming from offshore oil -investigation of February, 1974. 

Independent geologists believe there is still not enough data to 
deny the existence of this structure near the Surry plant, but the 
wording in the AEC safety evaluation shows the need to view 
available data in a particular way : "Because the Hampton Roads 
fault would be in a critical position with respect to the site, much 
attention was paid to the details of the applicant's argument that 
the fault . , . does not exist." 

Rewording tliat, it would seem to me to be saying, "Because 

1 Seep. 110. 


we don't want there to be a fault near Surry, we will pay attention 
to those arguments that say it isn't there, and we will ignore those 
o-eoloffists who postulate that it is there." , • . 

*' Gomg on— incidentally, that statement in quotation marks is trom 
the U.S. Geological Survey assessment of the Surry site. 

Three Is sound, firsthand information desired? Is it actively 
sought, even under crisis conditions, unless that crisis receives heavy 
play in the press? . • ■ ^ i*. 

Given North Anna's consultants reporting of suspicious fau't 
symptoms culminating in acute collapse of reactor No. I's excavation 
wall in 1970, one must ask why no AEC geologist visited the trou- 
bled site in its February crisis. , .^.n -.^-n i ^ r 

Records show an AEC inspector there on the 19th, 19(0, who duti- 
fully reported the unstable strata m the rock bed (that) allowed the 
lip of the excavation to slide in the hole. o T^• i v 

Did that report ever reach the AEC project manager? Didn t 
he then pick up the phone and discover that VEPCO's consultants 
were flying in from Boston and were seriously considering faulting? 
Perhaps this committee can find out. 

Senator Metcalf. I don't know whether the committee can find 
out, but as the previous witness indicated, there is a lot of informa- 
tion that nobody gets around here. But I will direct our staif to try. 

Mrs. Allen. 'Excellent. I do know that at least recently the pro- 
cedure has been that information from the Atlanta AEC or now 
NRC, inspection office does come to the project managers. So we 
would assume that that same procedure was in effect in 1970. Thank 

The geologist who actually arrived on February 2-3 was not from 
the AEC or the USGS. He was a professor from a local community 
college, and he was there because it evidently is in the nature of all 
geologists to take advantage of any excavation that ever appears 
anywhere and go look. 

These excavations were mammoth and it was a marvelous oppor- 
tunity. They took a field trip and took students to look. So there 
he was on February 23. And he couldn't believe what he seemed 
to be seeing — a major fault in a nuclear reactor excavation. 

Dr. Funkhouser sought permission from VEPCO's resident en- 
gineer to return with expert colleagues. Dr. Goodwin, structural 
geologist and chairman of the geology department at the College 
of William and Mary, and a member of his faculty. Dr. Clement 
confirmed Dr. Funkliouser's shocked diagnosis: a classic textbook 

They photographed the fault, and used their slides with hundreds 
of students from 1970 on — a fact which increases the mystery of 
VEPCO and AEC ignorance of the structure. See attachment 2.^ 

Further, the three geologists testified to the AEC — they were 
actually deposed on the fault in 1973 — that they called the fault 
to the attention of VEPCO's resident engineer, expressing concern 
as to whether this was a good thing to have in any kind of founda- 
tion. But that was in 1970. 

Somehow the information was lost during the ensuing 3 years of 
continued construction, and somehow neither VEPCO nor the AEC 

1 See p. 119. 


knew anything of this diagnostic visit of three independent geolo- 
gists just at the height of geological crisis and consultation among 
the geologists of VEPCO's constructor, Stone & Webster. Truly 
unaware of the infirm foundations were the press and the public. 

Dr. Goodwin later told the press when they called him in 1973, 
"Any fault is not a good place to build reactors. Chlorite is very 
weak and weathers rapidly. We just don't know what the long-term 
effect of water seepage in rock faults is." 

Sadly, the last question that we think you must ask is: Is it pos- 
sible that information submittal to regulatory agencies is an expen- 
sive and tardy exercise to justify premade industry/agency deci- 
sions rather than a genuine effort to find information upon which 
to base decisions? 

VEPCO's contract with North Anna constructor Stone & Webster 
was signed in 1966 ; in 1967, the contract for North Anna unit 1 was 
awarded to Westinghouse for $446 million. Not until 1968, as far 
as we can discover^ were studies made of North Anna geology and 
site feasibility. 

By the time construction license hearings were actually held be- 
fore an atomic safety and licensing board in November of 1970. And 
you recall all of this crisis in the excavations was February 1970 — 
by the time the hearings were held in November of 1970, millions 
of dollars worth of momentum was rolling at the site. Steel liners 
hid the faults in the excavations. 

Only the naive public thought the hearings were actually held to 
decide* whether or not to construct the nuclear station. 

Nevertheless, the parties to the construction license hearings, par- 
ticularly the AEC staff and VEPCO, had a responsibility to adduce 
information on a kev construction issue — foundation conditions. 
Neither VEPCO nor the AEC brought up the subject. 

The Board asked no questions about site suitability. 

This pattern of 1970 repeated itself in 1973 — even though during 
the exact hours of the hearing on construction licenses for reactors 
3 and 4, international experts were at the site, trying to decide what 
to do about their severely faulted excavations. 

Two such blatant instances of failure to adduce key information 
ultimately became part of the basis for VEPCO's conviction in April 
of this year of having submitted 12 material false statements on 
North Anna faulting to the AEC. 

The NRC conviction, however, came only as a result of persistent 
citizen action and not because of regulatory or State insistence upon 
integrity and completeness of information. 

The State was a party to this action. The AEC had actually put 
out an embarrassinglv sloppv investigation report vindicating 
VEPCO in ]March of 1974. See attachment 3.^ 

The AEC staff also tried to help VEPCO out of its difficulty in 
1973 by having their geologist send an affidavit to the Board pre- 
dicting that an expensive study by Dames & INIoore would resolve 
all site problems when it was published in August. 

I brought it because it is such a marvelous piece of publication. 
I thought you might be interested in taking a quick look at the 

See p. 123. 


photos that are in it and to realize that it has been almost totally 
discredited by the AEC by many, many questions that followed 
after this definitive report. 

Senator Metcalf. Is that the only copy of that study that you 
have ? 

Mrs. Allen. That is the only one that I have, but I know that 
the AEC has many. 

Senator Metcalf. We will obtain another one. 

Mrs. Allex. Very g^ood. 

There is a little book mark in there that shows you a photo that 
was available to them of reactor excavation 1. 

But between tlie affidavit and the report came the coalition news 
release. This was followed by a major story in the Washington Post 
which surprised and embarrassed the Joint Committee on Atomic 
Energy and probably had a significant effect upon the manner in 
which the North Anna site and other sites were studied from then on. 

As I said, many questions followed from this report rather than 
its solving the problem, as had been predicted by the affidavit. 

But we fear site selection study and reform come too late to have 
any effect upon the health and safety of Virginians. Construction 
goes on feverishly at this fractured site where even the design is 
inadequate. The' Advisory Committee on Reactor Safeguards 
(ACRS) said recently that reactors in the Piedmont and the Coastal 
Plain should be designed against .20 g horizontal acceleration, 
gravity. North Anna — in the Piedmont and on a fault — is designed 
only against .12 g while Surry — in the Coastal Plain and subject 
to liquefaction — is only designed against .15 g. 

The concept of adequate seismic design is a questionable one — 
especially in the light of AEC reports that many seismic shock 
absorbers leak, and half — I think more than half, actually— the 
seismic restraints at Surry cracked and had to be redesigned and 

It is our information that these same parts cracked at North 
Anna and liave caused great delay and are now the subject of a 
suit by VEPCO for $153 million against the manufacturers. 

The seismic design statement bv the ACRS was a pleasant, if 
late, surprise. Despite that body's admirable name — safeguards — 
the impression is unmistakable that their major function is to lend 
expensive and prestigious approval to the premade industry-agency 
decisions referred to in question 4. 

There is no evidence in their letters originally approving North 
Anna and Surry construction that they were aware of or concerned 
about serious foundation problems at both sites. 

Further, minutes and other documents forced from their files 
under the Freedom of Information Act are heavily censored, more 
deletion than document. 

Thanks to the efforts of our superb young lawyer. Professor Wil- 
liam Rodgers, of Georgetown, there was a motion to compel ACRS 
documents for the showcause hearing. 

I think that the deletions are dramatic. You can see that the let- 
ters, many of the letters regarding the Nortli Anna site, would have 
a preliminary paragraph, "Dear John : Nice to hear from you," and 
then the remainder of the thing would be totally blank. 


I would in fairness say that in cliambers the board at the show- 
cause hearino; did restore some of this material. But I think it is 
significant for you to know the manner in which the material came 
from the ACES. 

Mr. Turner. INIrs. Allen, one other point right here, if this geo- 
logical fault had been identified and admitted by the VEPCO and 
NRC early on before the construction, could VEPCO have shifted 
the plantsite to another location where such hazard might not have 
been presented? 

Mrs. Allen. That could have been suggested, I think, informally 
by the State geologist and perhaps more formally by Dr. Paul 
Roper that at least the plants could be moved off the fault. 

Dr. Funkhouser said it looks as if they were sited right onto it. 
They could have been moved 200 yards and then at least the reactors 
themselves would not be sitting immediately on the fault so that as 
they are now, they are subject to shear as well as shake. If they were 
moved off the f ault,\ then there would be that much added safety 

ISIr. Turner. But this would be before the construction started? 
Mrs. Allen. Yes. It would be a matter of digging a different hole. 
I would think so. Yes. Did I answer that adequately? 

Senator Metcalf. It would still be, if you moved it how many 
yards ? 

Mrs. Allen. I think 200 yards. It would still be certainly in a 
faulted area. There is no denying that. 

Senator Metcalf. If you just moved it that far you would only 
remove the shearing; you wouldn't remove the earthquake or shak- 
ing of it. 

Mrs. Allen. That is right; absolutely. The fact that they are in 

Mineral, Va., should be a signal, because minerals precipitate out 

along faults and we know that there is other faulting in that area. 

Senator ]Metcai>f. The very name of the area should have been 

a red flag to them. 

Mrs. Allen. Right, but I think the area was chosen because of 
proximity to cooling water possibilities and to the electric load 
rather than with any worry about foundations. 

Going back to the' available information, materials from the files 
of the IT.S. Geological Survey, the USGS, were remarkably com- 
plete. They were very cooperative in supplying information; con- 
taining such remarks as "I would keep my fingers crossed and would 
not want to live near North Anna,'' by one of the ITSGS men. 

And another: "It is disturbing i:o' have four reactors cut by a 
fault made up of clay gouge — that is the wet, soft material that is 
in the fault — such a fault zone does represent a potential plain of 
movement — all in all, I am not happy about the situation." 

The misgivings quoted above, however, had no effect in 1974 
against the expensive nuclear momentum that had been rolling at 
North Anna since the I"^SGS visited the site in 1969 — but this was 
just kind of a walk through the fields; there was no excavation at 
that point — and declared VEPCO's geologic appraisal "adequate" 
in 1970 — an appraisal, incidentally, which put the closest fault at 
distance of 5 to 6 miles. 

The strong working assumption was "nuclear plants are go," even 

as the USGS readily admitted that geologic structures in the area 
were "very poorly known" as were — and are — the causes of the 
famous Charleston, S.C. earthquake. 

Now there is a study grant from the AEC to the USGS to explore 
the causes of the Charleston quake, which is pretty ex post facto 
when you consider that one of the most risky nuclear situations in 
the country is in South Carolina. This is the Barnwell reprocessing 
plant which is going to be the scene of wastes coming from reactors 
from many places to be stored and reprocessed in an area that is 
more seismically at risk than Virginia. 

They are studying it now. One of the USGS men told the coali- 
tion that we have no handle on eastern geology, but— this is the point 
that seems crucial to the concerns of this committee — no one ever 
said "Wait a minute. Maybe we should get some more information 
before we site nuclear plants all over the East. Do we really under- 
stand seismicity in this part of the counti-y? 

"Will reactor seismic design stand up against shake — let alone 
against shear directly beneath the plant? What will our cooling 
water impoundments do to the stability of the area?" We have added 
13,000 acres of water, T believe. 

Senator Metcalf. ;^^rs. Allen, that is five bells. That indicates I 
only have 5 minutes to get over to a rollcall. I will, for the benefit 
of the next witness, too, answer this rollcall, immediately return and 
we will finish this hearing this morning. 

We will run right straight through until all the witnesses testify. 
If you will excuse me for a few minutes, I will be right back and 
hear the rest of your testimony. 

Mrs. Allen. I appreciate that very much. 

[Brief recess.] 

Senator Metcalf. The hearing will resume. 

I see you were at the bottom of page 7. 

Mrs. Allen. T will pick up there because you were kind enough 
to maybe let me ask that question again because I think it is terribly 

The thing that seemed really crucial to us was that no one said 
"Wait a minute, maybe we should get some more information be- 
fore we site nuclear plant all over the East?" De we really under- 
stand seismicity in this part of the country? Will reactor seismic 
design stand up against shake, let alone shear, directly beneath the 
plant? A^liat will our cooling water impoundments do to the sta- 
bility of the area? 

Senator INIetcalf. I think that is an awfully important question. 
Some of the concerns that this committee and our last witness have 
is we have inadequate information — but as your outline of testimony 
and development, and so forth, you say we have the information and 
nobody acted on it. 

Mrs. Allex. Tn that particular site, yes: overall, no. In other 
words, the USGS said we have no handle on eastern geology overall. 

Senator Metcalf. Are we going to build nuclear sites on the San 
Andreas fault ? When we find the fault, are we going to continue to 
build? We had this information. 

Mrs. Allen. Wliat you are asking is terribly significant. You 
probably know that originally the ACRS gave tentative approval 

to the. Bodega Bay Plant, which was only 300 yards from the San 
Andreas Fault, and again the only reason that that plant did not 
proceed was energetic citizen action against building near the San 
Andreas Fault, which seems unfortunate when we have regidatory 
people who should really be looking at that kind of problem. 

Senator INIetcalf. I was fortunate enough to attend Stanford 
University, and all over the campus are remnants of the old Stan- 
ford University, the chapel, et cetera. It was all shaken doAvn by the 
San Francisco earthquake. We know where that fault is. 1 am 
afraid that if the procedure referred to in your testimony would be 
carried out in California, they would build another nuclear plant 
over there. I suppose it doesn't hurt to build a university on a fault. 
The earthquake just shakes down buildings. 

]Mrs. Allex. But here the risk is very great. 

Senator Metcalf. The other testimony was we didn't have ade- 
quate information and then all at once you come in. We are export- 
ing jobs, and now you sfre telling us that we have known about this 
situation, we have gone ahead and it is not jobs but lives that are 
at stake. 

Mrs. Allex. I am glad that you really see the serious implications 
of this. That certainly is admitted, that lives are at stake. 

One aside, because "you brought up the San Andreas Fault and 
the San Francisco quake, we understand from the USGS that the 
majority of damage and loss of life from the San Francisco quake 
was due to liquefaction : that is. the buildings that were on soil that 
liquefied, that became jelly with the quaking received the most 

I mention that because liquefaction as opposed to, or perhaps in 
addition to a fault, is the risk that we are aware of at the Surry site, 
the other nuclear site in Virginia. 

By the time the Xorth Anna fault scandal broke in 1973, it was 
too late to ask these vital questions. Too much money had been spent 
in combined geologic and nuclear ignorance, and nobody associated 
with the project had any stomach for the possible answers. 

Thus, the work of Dr. Eoper. an expert Piedmont geologist, who, 
incidentally, I shoidd have said was a consultant to Dame & Moore, 
who suggested that the reactors be moved off the fault and that 
suspicious regional, emphasize regional, geologic structures be 
checked out before any nuclear operation began, had to be suppressed. 

Actually, the omission, the failure to submit the Roper report was 
considered by the XRC Board to constitute a material false state- 
ment. Better to risk a material false statement and an accident than 
a bankrupt venture. [See attachment.^] 

Economics triumphs handily over prudence. Agency supports 
agency in early superficial approval of utilitv documents. Xo one 
really worries about the hard questions or about looking at first- 
hand information. And I emphasize that because it seems that these 
approvals by the USGS and by Blume and Associates in San Fran- 
cisco who were the consultants at that time to the AEC ; these ap- 
provals were based upon looking at the utilities' documents. So they 

Seep. 110. 


didn't go back to the first sources. They simply approved what the 
utility submitted. An NRC project manager told NAEC he was used 
to having things mismapped and misrepresented. NRC's Director 
of Regulation said : "We are used to optimistic stories from licensees 
and we discount them." 

But they don't discount them. When a major problem arises, the 
NRC tells the utility to investigate itself. Wlien abnormal settling 
was suspected at Surry in ]\Iay— and, incidentally, that report came 
from a confidential informant; it did not come from the utility it- 
self— VEPCO called back its constructor. Stone & Webster, whose 
great need was to prove that what they had designed and built on 
a "suspect"— and that was the NRC-AEC adjective for the site— 
what they had built on the suspect site had retained its equilibrium. 

The NRC required no disinterested consultant, instead, its staff 
reported that VEPCO convinced us there was no problem. 

For years, NRC accepted VEPCO's statement on North Anna 
that faulting of rock at this site is neither known, nor is it sus- 
pected. Once it did become undeniably suspected and painfully 
known, VEPCO was allowed to return to those same consultants, 
the very people who said the fault was not there at all, to return 
to those same consultants now for them to prove that, although the 
fault was there, it was ancient, benevolent, and harmless. 

No objective opinion was required. It is almost impossible to 
escape the conclusion that objective opinion, sound information, 
represents a major threat to the nuclear industry. The seismic gam- 
ble alone is considerable, and according to a minority opinion by Dr. 
Okrent of the ACRS— this is a quotation from his letter: 

* * * inadequacies in design and construction exist * * * it appears unlikely 
that a plant could survive safely a large earthquake * * * earthquakes are 
almost unique in their ability to fail each and every structure, system, compo- 
nent, or instrument important or vital to safety. 

I am sure that you gentlemen know that a fault obviously indi- 
cates the position of a past earthquake and is a very likely spot for 
a future earthquake. 

Radiation risks are greatly increased by seismic uncertainties. 
Radiation risks particularly for radioiodine to the thyroid are the 
subject of warnings, even from nuclear proponents, enthusiasts like 
Dr. Ralph Lapp. 

I would like to submit quotations from Dr. Lapp, where he feels 
that the AEC underestimates the radioiodine risk that they fail to 
differentiate between the infant thyroid and the adult thyroid, and 
that even he, as one of the most enthusiastic proponents of nuclear 
technology, is concerned about the risk of radioiodine to the thyroid. 

Senator JMetcalf. That information will be incorporated in the 
record at this point. 

]Mrs. Allen. Along with that, with the quotations from Dr. Lapp, 
I would like to include work by Dr. Irving Lyon, who has done a 
careful study of biological hazards and the AEC treatment of same 
near the Point Beach Plant in Wisconsin. 

He shows very disturbing levels of iodine in the milk in that area. 
I would like to incorporate that in the record, if I may, please. 

[The information referred to follows:] 


Bxc«rpt. from papers by I». RALPH E. LAPP, atomic .clentl.t who eupporte 
xxoTpMB iron. i> f j the UBe of nuclear energy... 

"The Heart of the Fuclear OontroTerBy" (to Atomic Industrial Porum 11/73) 

A» you all know, the ABC's accident yardstick has nine gradations 
rangl^'from Class 1 or trivial accidents with no off-site consequences 
to Class 9 or catastrophic events with serious potential off-aite con- 
seqlIi5^»T.':fhe consequences of Class 1 throu^ Class 8 accidents are re- 
qulred (by the ABC) to be estimated In the applicant's Environmental Im- 
pact Statements, but Class 9 Is. excluded ^om BIS. Off-alte consequences 
of Class 8 events are of little significance to health and safety beyond 
the Low Population Zone (LPZ). 

...I reexamined the technical basis for the ABO's definition of the 
LPZ radius ... ^ ^pi^ieB^sT THATM RADIO ^IODOT RISK 

...In my Investigation I discovered that the ABO has made no dlstlno- 
tlon between the adult thyroid and that of the Infant. The Oonnonwealth 
ofTennsylvania has to consider the most vulnerable segjnent of its popular, 
tlon at risk, A 30 r«n Infant thyroid dose is postulated as a reason- 
able amergenoy dose limit for iodlne-181 deposition from inhalation. 
Using this line of reasoning, I came to the conclusion that the 4 to 5 
miles stipulated by ACH3 (9/27/73 testimony before the Joint Conmlttee on 
Atomic Energy) would very considerably underestimate the risk situation . 

Uy own feeling about the lewbold Island case (denied by the ABO because 
it would place reactors only 11 miles from Philadelphia) was that, if the 
site were permitted, the reactor should be equipped with additional safe- 
guards , i.e. stronger secondary containment and engineered release of acci- 
dent related radioactivity . 

For example, rather than wait for containment to be over-pressurized 
and vent fission debris at low levd, it would be desirable to depreseurlse 
throu^ controlled release throu^ a trap-etaok . A 100 meter stack i± a 
potent mltigator of radiation dose jji the to S mile zone around the re- 
actor site . 

...public attention is again centering on what the ABO used to call 
the lEA— the maximum credible accident , now designated as a Class 9er. 

I have deliberately invoked discussion of a Class 9^ accident in the 
Instance of Kewbold Island to illustrate the problem of translating the 
radlodine risk into terms understandable to the public . 

The ABC does not have a rational siting policy for industry to follow 
and depends more or less on an ad hoc applicant by applicant improvlsion. 
Thus the ABO's stand on Kewbold Island must be regarded as a landmark de- 
cision—In effect, saying to utilities "Come no closer to cities." 


LAPP Excerpts Page 2 

...The ASC'a failure to revise WASH-740 played right into the hands of 
the nuclear opposition, allowing fearful extrapolation of reactor risk. In- 
deed, the AEC even accentuated this problem by publication in July 1971 of 
a Battelle Columbus Laboratories report ( BMI-1910 M EVALUATION OF THE AP- 

- "The 300-ran thyroid dose would be exceeded for distances up to 
100 miles downwind from the reactor site" can be Isolated... 

It is the community that takes tiie risk — but the risk assessment is 
remote from the community... 

A small community close to a reactor site is ill-equipped to second- 
Judge the soundness of a nuclear risk assesament. Even the largest cities 
lack the mechanism for appraising the risk. Certainly the comnunity is 
justified in viewing corporate estimates of reactor risks,,, with a degree 
of suspicion... 

For a variety of reasons the Atomic Energy Conmiss ion's credibility 
coefficient. . .so far as the public is concerned is still quite low,... 

If the risk is very low, ^ could be argued that the plants cam be 
sited anywhere and that no emergency plana are necessary . . .But ace idents 
do happen — ^because men and mechanisms are fallible — and I think it is worth 
while to contemplate the consequences of a nuclear accident. A Class 9 

accident of major consequence reckoned in terms of loss of life and radia- 
tion casualties could bligjht the nuclear industry... 

"Public Assessment of Nuclear Risk" (to Joint Committee on Atomic Energy 1/22/"; 

...I think it is fair to say that opposition to nuclear power now con- 
centrates on the following trio of hazards: 

1. The danger of a nuclear accident , i.e. a pulsed release due 
to meltdown and faulted containment. 

2. Ultimate waste disposal of long-lived fission products and 
aotinides, i.e. the Federal Repository. 

3. Plutonium — both as a health hazard and as a weapon-threat. 

...I 8h«J.l address rny testimony to risk assessment of a power reactor accidettt. 
In particular, I shall be concerned with Class 9 accidents or those in which 
sequential systems failures lead to the release through containment of serious 
radioef fluents . . . 

Fortunately, the industry has never experienced a Class 9 accJ 
dent. But this fact cannot be used, as statistically significant . . .since the nv 
ber of reactor years is too small. Power reactors are complex pieces of equip- 
ment, and they do exhibit a record of abnormalities... 


LAPP Excerpts Page 3 

Huclear engineers have the option of adding mit igat Ing devicea to reactor 
systems.. . 

A tall stack, for example, represents a potential means of reduction 
of near-site effluent dose in the event of an accident. ..the stack release 
could effect a hvindred- or a thousand-fold dilution of the stack effluent as 
coinpared to the low-level concentration that would otheirwlse characterize a 
near-site point in the down-wind direction... 

The dominant isotope of iodine is lodlne-131, an 8-day half-lived species. 
A 3440 Uwt reactor, typical of the 1000 Mwe class, (size at North Anna and Surry) 
would build up an Inventory of 86 million curies of iodine-131, or of the order 
of 10 curies of activity per fuel pellet. 

Such a reactor generates iodine-131 equivalent 
to that produced by a 700 kiloton explosion 
or 35 Kagasakl class weapons. 

...I have suggested on two occasions that the AEG should recast its radio Iodine 
criteria in terms of a lower dose to the Infant thyroid . Hy reasons are: 

1. Data available since 1962 indicate that the Infant thyro id is 
sensitive to relatively modest radiation doses . The Bravo 
nuclear test. . .exposed Rongelap children to radiation hazards 
terminating with evacuation from the island at a time 36 hours 
after the Bravo shot. (March, 1954) 

A total of 19 of 25 Marshallese children 
under the age of 10 at the time of irradiation have exhibited 
thyroid pathology and 16 have required surgery. Two Rongelapese 
children exhibited growth retardation due to hypothyroidism... 

2, ...Actual thyroid burdens for very young children would be 3 to 4 
times that for the adult^thyroid when there is conmon exposure to 
the same concentration of radiolodlne. . .The fetus in uteic Kould 
be sensitive to radlodine uptake after thyroid function begins, 

EtIEROENCY MEASURES: Commonitles planning emergency measures for nuclear 
accidents need to establish radiation protective action guides , taking into 
account the most vulnerable sector of the population. The guide considered by 
some states contemplates evacuat ion when the infant thyroid dose would exceed 
30 rem. 

Bnergency action to minimize radiolodlne dosage could include (a) ad- 
ministering potassium iodide (KI) tablets to block uptake of radlodine; 
(b) use of protective masks; and (c) shelters. My impression is that many 
states and conmunities could benefit from having available better estimates 
of the raaiation hazards associated with reactor accidents . While they may be 
told that the probability of a nuclear accident is very low, they are the 
risto-takers . and they have responsibility for protecting the pub i ic health 
and safety 

56-957 O - 75 - 7 


I /L V L a g. ^ ffo i 



Of the 


II WI300I3IH* 

By Irring Lyon** 

The appearanoa of radloaotivlty in milk produoed In the 
vlolnity of the POIUT BBACH HUGLBAR P0V/2R PLANT In Wisconsin (as 
Indicated in State Badlologioal Reports) raises serious qpiostlons 
for the residents of that state and others In the nation 1^0 con- 
•ome these prodnots. The levels of radioactivity exceed those 
permitted by the ABO. 

In addition, according to a recent Report of ABC Inspec- 
tions of the Point Beach Plant, there are a namber of problems con- 
cerning the monitoring of radioactivity. 

The parpoae of this Report is to examine more closely this 
situation and its implications for public health and safety; and, 
to assess whether or not it is possible to eliminate these hazards 
in the fa tare. 


The roentgen, r, la a unit of radiation 
defined in terms of the energy associated with X-rays or gamma-rays. 
This enerQT, resulting in the ionization of air within a given vol- 
ume. Is expressed in energy units, ergs, per cubic centimeter of air. 
The roentgen may also be e^ressed as the q[uantity of X- or gaoraa- 
radlatlon that will produce a unit of positive or negative electric 
charge due to ionization of air molecules in 1 cubic centimeter of 
air. Actually, the roentgen la too large for convenience in a num- 
ber of applications. Therefore, a unit one thousandth as large, 
the milliroentgen or mr, is often used. 

This report la based on information supplied by 
Gertrude Dixon of Stevens Point, Wisconsin, Head 
of Research for the League Against Ihiolear Dan- 
gers (LAND). 



Irving loron •ani»d his lootorate In Physiology at the Uni- 
versity of California, Berkeley, In 1952. Following a fel- 
lowship for two years in the Department of Htatrltlon at the 
Harvard School of Publlo Health, Dr. Lyon carried out re- 
search In industry In a major city hospital and in aoadeola. 
His ei5)erience Includes tioth undergraduate and graduate 
teaching. Including medical school bio-chemistry and under- 
graduate administrative work. He is the author of more than 
3C technical reports in bio-ohemlstry and bio-physics pub- 
lished in internationally-known journals. Dr. Lyon is a Pel- 
low of the American Association for the Advancement of Science 
and a member of other scholarly societies. He is a Consult- 
ant to the Dairy Industry. Since 1963 he has been actively 
involved in assessing the Biological and BnTlronmental Impact 

The RAD - or Radiation Absorbed Dose - refers to the 
amount of radiation actually absorbed by the body or various tis- 
sues within it. 

The REM - or Roentgen Equivalent in Man - provides a 
means of relating the different energies of ionising radiations 
to one another to determine and assess equivalent effects in the 
human body. 

In practice, the Roentgen, Had and Rem are commonly 
taken to mean essentially the same thing. Thus, one thoussindth 
of each of these units - mr, mlllirad (mraui) and millirem (mrem) - 
is used interchangeably. 

The biologioal si^iifioanoe of Radloiodlne, 1-131 (balf- 
life of 8 days), Radiostrontium, 3r^90 (half-life, 28.6 years) 
and Radiooesium, Gs-137 (half-life about 30 years) lies in the oar- 
paujity of plants and animals - Including human beings - to take 
them into their living substance where they may undergo radioactive 
decay. During this process energy Is released. The potential 
damage of these, and other Radionuclide^ is proportioned to the en- 
ergy of decay absorbed by living cells and tissues. 

Purthermore, Iodine - radioactive or not - is quickly 
and strongly concentrated within the thyroid gland. Strontium, 
whose chsmical properties closely resemble those of calcium, is 
primarily concentrated in bone and other mineralised tissuea. 
While ••slum, with oheoioal characteristics similar to those of 
potassium, tends to distribute in the soft tissues (such as mus- 
cle) of the body. It is clear, then, that 1-131, by localising 
in the thyroid gland (especially in children) can cause tl^rroid 
tumors as well as other thyroid problems. More si ©lif leant ly, 
1-131 released into the atmosphere from Nuclear power Plants thro 
their off-gas venting systons, along with other radioactive gases 



(Krypton 85, Tritlated Water Vapor, Radloxenon, ato. ) may fall upon 
grass i^ara oows graxa. Ingestion of this grass by cows la fol- 
lowed by the appearance of 1-131 in milk, a qpalitatlTely and quan- 
titatively Important food for children. In this way, ohlldren are 
probably more prona to blologlaal harm and damage from 1-131 than 
others in the population. 

3r-90 oan substitute for oaloium in bone mineral. The 
fairly rapid turnover of the soft, spongy bone bordering the marrow 
oarity - especially of the long bones of the body - puts this radio- 
nuclide into close proximity both to the maturing red and white 
cells of the blood-containing sinuses and certain other types of 
cells, involTed in imoune responses, which protect the body against 
foreign and native toxic substances. As a result, these cells may 
be damaged by radiated energy released by radioactive decay of the 
nei^boring atoms of 3r-90. !Fhe body may subsequently show evi- 
dence of leukemia and/or a variety of abnormalities in Imoune res- 
ponses, some of which may become nianifest by increased allergic sen- 
sitivity or by decreased resistance to certain oomniunlcable diseases. 

Gs-137, because of its similarity to potassium, distrib- 
utes itself throughout the soft tissue of the body. The release of 
its radioactive decay energy therein may also give rise to cancers 
and other disease conditions. Furthermore, 08-137 - as is true of 
1-131 and 3r-90 - may undergo biological concentration of several 
thousand- fold. This means that the flesh of fish, for example, may 
show a concentration of 03-137 3300 times or more hi^er than the 
concentration of Cs-137 in the water in i»rtiioh the fish swim. More- 
over, the capacity of Cs-137 for binding to soil particles suggests, 
as has been found, that it would be available for concentration in 
food plants and vegetables. 

The releases of radioactivity from Nuclear Power Plants 
are established by the ABC* according to the cost and availability 
of ecfulpment and instrumentation involved in normal radionuclide 
holdup and release activities of the plant. 

Up to 1972, the ABC "allowed" 80-100 pCI of 1-131 per liter 
of milk. This concentration, assuming a dally consumption of 1 liter 
of milk, would result In a cximulatlve thyroid dose (in children as the 
most sensitive group In the population) of up to 525 mrem/ yesur, more 
than 6 times an assumed average natural background radioactivity of 
100 mrem/y«ar. 

Sow SBBA, Saergy Research and Development Administration, and 
HBC, Suclear Re^ilatory Commlssloni 

but, for brevity, referred to throughout this report as 
ABO, Atomic Snergy Oommission. 


In 1972, the ITatlonal Academy of Science recontnended a 
100-fold decrease In allowed releases. Applied to 1-131 in mlllt, 
this would mean a concentration of about 1 pGl/liter, or, an an- 
nual dose to the thyroid of a child of approximately 6 mrem. 

AEC's Regalatory Guide 1.42, June 1973, Indicated that 
the msnianni concentration of 1-131 in milt should be 2.4 pCl/liter 
idiich corresponds to an exposure dose to the thyroid of a child of 
15 mrenv^'year. 

Uilk samples were collected at the Korneby Dairy, Mlsh- 
loot, 5 miles from the POINT BEACH NUCLEAR FACILITY. This Dairy 
is a milkshed which processes raw milk from approximately 70 farms 
in Manitowoc County. Bach f»m contributes a daily average of 
600 lbs. of milk (about 270 liters of milk). The samples were 
found to contain radioactivity at levels between 5 and 10 pCl/ 
liter, corresponding to annual thyroid doses between 3D and 60 
mrem. This is between 2 and 4 times the AEG recommended maxi- 
mum annual thyroidal exposure. 

Purthennore, the AEO's Regulatory Guides 1.42 and 4.3 
recom-mend a detection limit for 1-131 in milk of 0.5 pGl/liter 
at the time of sampling. Moreover, sampling for 1-131 must be 
weekly. Wisconsin Electric 's 1-131 monitoring is carried out 
by the Radiation Protection Section (HPS) of the Wisconsin De- 
partment of Health and Social Services with instramentation ca- 
pable of a lower detection limit of 5 pCl/llter. And the util- 
ity apparently does not receive milk sample analyses more often 
than once a year. Lawrence McDonnell, Wisconsin's nefw Chief of 
EPS, has stated that analyses will be based upon the stricter de- 
tection limits set by the AEC, but on a monthly, rather than a 
weekly basis. 


The IBC is eager to point to their exolnsive responsi- 
bility in the field of radiation/radioactivity, a responsibility 
given over to them by Congress. However, even while touting 
this exclusive control over natters radiological, recently reaf- 
firmed by the United States Suprene Oourt following a challenge 
by the State of Minnesota, the ABC is quick to shift its respon- 
sibility for radioactive releases from Ntiolear Power Plants and 
monitoring activities onto licensees, the utilities owning and op- 
erating these plants, and/or state or other public agoncies. If 
this constituted a responsible delegation of authority, such act ions 
by the ABC oould indicate a primary oonceim for the public's radi- 
ological health and safety. Unfortunately, the nnaber games and 
word games played by the ABC suggest otherwise. 

lh*t are soma of these games? The situation in Wlscoasln, 
centering around the radioactivity released from Units 1 and 2 of 
the POL»}T flSA'JH NUGLBaH PC'r^R STATION, seems to provide a good oasa 
study in partial answer to this question. 

A letter dated April 26, 1974 from James Q. Keppler, Re- 
gional Director of the ABG's Directorate of Regulatory Operations 
for Region III, to 3ol Bursteln, Senior Vice President of the Wls- 
oonsin-Mlohigan Power Company » refers to an Inspection Report con- 
ducted by L. R. Oreger of the Directorate. The Inspection was aa- 
nounced ahead of time and took place March 6-8, March 28 and April 
2-3, 1974. Althou^ Groger's name la typed in as The Principal 
Inspector, the name J. A. Pagllaro is written In and the report is 
dated April 23, 1974. Mr. Pagllaro was not accompanied hy any 
other inspector or Directorate personnel and his report waa appar- 
ently reviewed by himself, according to his ai^ature, April 23rd, 
1974, as Senior environmental Scientist, Environmental and Special 
Projects Section. , 

Mr. P»g3.1aro did not «xamlne "... the licensee's contract 
laboratory personnel, equipment or procedures". But he noted sev- 
eral findln!?3 in his inspection! 

(1) The method of maintaining "... monitoring records was not 
conducive to retrieval of date, ..." oonoemlng environ- 
mental radiation and radloaotlvlty. 

(2) There were "... several apparent incorrect entries ..." 
of monitoring results presented in a previous report. 

(3) There were "... several abnormal ... monitoring results 
..." and "... no apparent follow-up action by the li- 
censee ..." 

(4) "... preventive maintenance procedures were discussed ..." 
in connection with calibration of air sampling Instru- 
mentation, including flow meters and vacuum gauges. 
Apparently there is no formal program for the calibra- 
tion and maintenance of monitoring devices^ In regard 

to "in-house" monitoring, one can Justifiably raise ques- 
tions about the propriety of a licensee monitoring it- 
self where public health and safety are involved. If 
the meters and gauges were being calibrated at the time 
of the inspection. It Is obvious that air samples were 
not then being collected or analyzed. 

(5) 1-131 analyses In "... milk samples did not meet current 
ABC guidance with respect to the detection limit ..." 
Moreover, results were received annually and were not 
thoroughly reviewed l:^ the licensee. It was suggested 
that the utility look at ways to Improve the program for 
sampling milk. 



(6) Fish kill information was required to be reported only 
if "si^ifioanf (without any definition of "aignifl- 

(7) Technical Specifications did not provide for control of 
chemicals released into the environment through the re- 
tention pond. 

(8) The licensee had not carried out a detailed examination 
or analysis of the "Non-Radiological Surveillance and 
Bvaluation Program". 

In a description of details included in the report, ac- 
companying Mr. Keppler's letter, it was actaiowledged that "a form- 
al program does not presently exist for periodic conduct of com- 
prehensive audits of the environmental monitoring programs". With 
uncalibrated monitoring equipment, devices for measuring radioac- 
tivity in milk one-tenth as sensitive as required by the AEG, and 
in the absence of the required comprehensive audits, how can the 
ABC conclude that "... the licensee's radiological environmental 
monitoring proeram conformed to the current regulatory require- 
ments ..."? 


Donald F. Knuth, Director of Regalatory Operations of the 
AEC, in a letter to Senator William Proxmlre RB» 1-131 in Milk 
in the Area Near the POINT BEACH NUCLEAR POWER STATION, dated Octo- 
ber 15, 1974, stateaj "There is no evidence to indicate that the 
Point Beach Plant has exceeded any regulatory limit for the release 
of radioactive material to the environment". Yet, in the same let- 
ter, Mr. Knuth notes that milk samples for 1-131 analyses are col- 
lected monthly - not weekly as required by ABC; collections are 
made at a milkshed 5 miles from the plant with no indication of 
1-131 levels in milk samples from individual dairy farms nearer to 
the plant. To appreciate what this could mean, consider the fol- 
lowing possibilities. Some 70 farms contribute a daily averaew of 
about 270 liters of milk to the mllkshed. The maximum concentra- 
tion of 1-131 permitted by the AEG Is 2.4 picoouries (pGI or 1x10- 
12 Gl, or a millionth of a millionth of a ourie) per liter. This 
concentration could easily be reached and exceeded in the milk 
pooled from the entire mllkshed if the concentration of 1-131 were 
ten times hi^er than the ABC msLximum in milk from only 7 or 8 
farms closest to the plant. Furthermore, althou^ the AEC reo- 
omnends detection equipment with a sensitivity down to 0.5 pCl/ 
liter {ABC Regulatory Guides 1.42 and 4.3), the equipment avail- 
able for determination of 1-131 In milk can only detect down to 5 
pOi/liter. Thus, 4,9 pGl/llter would not be detected. In these 


circumstances, the ISO's maximum allowed concentration of 1-131 
in the pooled milk samples collected at the milkshed could be 
reached and exceeded with contaminated milk from only 3 to 4 
fsurms nearest the Plant. Moreover, because of its short half 
life of 8 days, 1-131, at 5 pCi/llter of pooled milk, would not 
be detected if milk samples were held for 24 hours before being 
counted for their 1-131 content. Let us accept, for the mo- 
ment, the AZO notion that a child consuming a liter of milk oon- 
taininn- 2.4 pCi of 1-131 daily for a year would receive a cunu- 
lative thyroidal exposure dose of 15 mrem. Then, under the con- 
ditions described above, thyroidal exposures could be twice the 
maximum acceptable to the lEG without any awareness of this by 
those who were affected and without even the possibility of be- 
ing alerted to this danger by milk sampling data. Taking this 
kind of information into account, it is difficult to accept Mr. 
Knuth's conclusion that "... we do not believe a significant risk 
to the public has existed ..." 


In Ms letter to Senator Proxmire, Mr. Knuth suggests that 
the applicable radiation protection ©aide is 80-100 pCi I-13l/liter of 
milk. Assuming that a liter of milk Is consumed daily, this level of 
radioactivity corresponds to an annual expoarare dose to the thyroid of 
500 mrem. Mr. Kruth refers to this level at a time when he, as the 
Director of Regulatory Operations, must know that the maximum concen- 
tration of 1-131 in milk had previously been lowered to 2.4 pCi/liter, 
corresponding to an annual tlyroldAldose of 15 mrem. ^parent ly, the 
AEG does not consider other pathways for radionuclide entry Into the 
hnman body. For Instance, radioactive gases, inolnding radioiodines, 
could be inhaled. This means that there Is the possibility of Inter- 
nal biological damage, even from the radio-active noble gases - Krypton 
and Xenon - and from Tritiated (radio-active) Water Vapor. 

As suggested above, the permitted annual exposure dose of 
1-131 to the thyroid, 15 mrem, is itself open to serious question. 
One would like to know the basis of the assumptions, and their val- 
idity, used by the AEG to determine the apparent correspondence be- 
tween a daily consumption of 1 liter of milk containing 2.4 pCi of 
1-131 per liter and the annual dose of 15 mrem. How has it been de- 
termined that this dose is tolerable, year after year? Obviously, 
similar questions are pertinent for 3r-90 and Cb-137 in milk with re- 
gard to their accumulation and effects (leukemias, oancera, etc.) in 
bone and in the soft tissues of the body. Then, too, what about oth- 
er radionuclides, not only in milk, but in other foods as well and In 
drinking water? 


The AEO olaima tb&t Ntiolear Power Plants do not cause ex- 
posure doses to the surrouivilng population in ezoeas of 1 orem per 
year. Yet it permits radionuclide releases corresponding to an 
allowable e:q>osare of 5 mrva/yeaLr, presumably on an "as low as prao- 
tioable" basis. Still, in seeming contradiction even to this "stan- 
dard", the thyroid of a child is "permitted" on annual eaqposure of 
15 mrsm. Ihat is the point of the A£C setting standards if these 
are permitted to shift erer upward? If the technology of Nuclear 
Power is constantly improTiag, aa industry spokesmen are continual- 
ly fond of telling the public, why aren't these standards becoming 
more , rather than less restrict iTe? If the technical specifica- 
tions for radionuclide emissions from Nbclear Power Plants are being 
ti^tened - as apparently claimed by the ABC - why isn't this reflect- 
ed in lower "permitted" exposures? Vhy does the AEC's administrative 
staff conclude that there is no cause for worry, when reports frosn its 
technical staff clearly indicate repeated violations of AJSC standards, 
non-oompliaoce with monitoring procedures and lack of sufficient sens- 
itivity in detection instrumentation to give adequate warning of en- 
vironmental radiomiolide levels? How oan the ABC issue ionediate de- 
nials of danger to the public from raulioanclide releases in excess of 
permitted levels when the ABC knows perfectly well that such state- 
ments are meaningless, because - 

(1) of the well-known delay of years or decades between subacute 
or chronic exposure and subsequent appearance of leuksmias, 
cancers and other radiation-induced conditions; and 

(2) it is practically impossible to prove that a particular can- 
cer or other condition was caused by radiation/radioactivity 
rather than by some other non-radiological biological and/or 
environmental insult. 

It would appear that the ABC plays with numbers and with 
words in order to hide from public view the real risks associated 
with Atomic Power Plants. Vhen Congress gave the ABC preeminent 
responsibility for radiation/radioactivity, did they also give that 
agency freedom to sidestep their responsibility and pass It on to 
others - such as the utilities and the atomic industry? It seems 
reasonable to suppose that the ABC plays these games to promote 
their plans to dot the United States countryside with these tech- 
nologically underdeveloped, dangerously faulty and basically still 
xmproven devices. 


Is there a aafe dose of radiation? 12D. Bven ABC (now the 
Nuclear Resolatory Commission, HBC, and Energy Research snd De- 
velopment Administration, ERU.) says "No level of exposure to 
radiation oan be considered to be without risk" (U. 9. Atoaio 
Energy Commission, Docket No. RM-50-2, Pablio Rulemaking Hear- 


Ing on numerical Guides for Deslga Objectives aad Limiting Condi- 
tions for Operation to Meet the Oriterlon "as Low as Practicable" 
for Radioactive Material in Llght-Water-Gooled Nuclear Power Reac- 
tors, February 20, 1974). 

Zt Is natural background radiation safe? HO. This radiation, 

which seema to be increasing due to human nuoleair activities, varies 
between 80 and 100 railllrads (mr) per year. It is responsible for 
up to 10;^ of con5:enital defects due to gene mutations; 10^ to 20^ 
of the Incidence rate of leukemlas; 10;* of all cancers, life-short- 
ening and degradation of the quality of health because of Increases 
In genetic diseases such as heart disease, diabetes, arthritis, etc. 

(Llous Pauling, "Genetic and Somatic Effects of Hl^ Energy 
Radiation", Bull, of the Atomic acientists . Sept. 1970 j Nat. Acad. 
Soi., "The Bffeota on Populations of Bxposure to Low Levels of Ion- 
ising Radiation, Advisory Comm. on Biol. Effects of Ionising Radia- 
tions, Nov. 1972.) ! 

3. Is "low-level" radiation harmless? NO. The National Can- 
cer Institute estimates that allergic children may develop leukemia 
with any added radiation (Irwin D. J. Brosa, Director of Blostatla- 
tica, Roswell Park Memorial Institute, "Protecting the Public 
Ac^lnst the Bio-effects of Radiation", 1973). Furthermore, there 
Is new evidence suggesting that prolonged exposure to low-level 
radiation may be more harmful than periodic larger doses ("Nuclear 
Fisaionj The Biological Peril", The New York Times, Kay 23, 1974). 

In Australia a survey of medical statistics Indicated a cor- 
relation between an annual Increase of 3 mr from 3r-90 and an In- 
crease in the incidence of leukemia , (Bruce J. Brown, "Atmospheric 
Nuclear Testing - A Survey of Medical Statistics In Australia", 
Science and Public Affairs, February 1974). 

An Increase in 3r-90 of only one plcocarie (pCl ) per liter of 
allk, assuming a consumption of one liter of milk dally for a year, 
may cause an increase of 1.29 Infant deaths per 100,000 births 
(Lave, Lester B. , Lelnhardt, Samuel and Kaye, Martin B., July 1971, 
Working Paper No. 19-70-1, Oarnegle Mellon University, Pittsburg, 
Pa., "Low Level Radiation and United States Mortality"). And this 
Increase In Sr-90 ooncentratlon in milk anounts to an annual dose 
of only 2.3 mr. 

4. Does Wisconsin milk present a danger to consumers? IT MAY. 
Bau Claire milk. In 1973, contained an average of more than 10 pOl 
of 3r-90 per liter, about twice the national average (U. 3. Envir- 
onmental Protection Agency, "Radiation Data and Reports", 1973; 
Radiation Protection Section, Wisconsin Department of Health and 
Social Services, "Annual Radiation Monitoring Reports", 1973). 
For 10 pCl Sr-90/liter, and one liter of milk per day, the annual 
dose would be about 24.5 mr. 


6. What is the radiation doae from Nticlear Power Plants? 
Aooording to utilities, as low as 0.003 mr/yr. (Wisconsin 
Electric Power Company, "Nnclesu* Power", 1972); according 
to ABC, 1 mr/jrr. However, in Jnly 1973, the AEG anoonnoed 
■n "as low as practicable" (ALAP) exposure from the nnolear 
power industry of 5 mr/yr. (U. S. ABC, WA3H-1258, July 1973.) 
But for skin and thyroid doses, 5 mr/yr was found to be too 
low to be achieved technologically; therefore, the dose was 
taiaed to the "practicable" level of 15 mr/yr. If this dose 
was assumed to come from 1-131 to a child's thyroid gland, the 
corresponding concentration of 1-131 in milk would be 2.4 pCi/liter 
assuming a daily consumption of one liter of milk throu^iout the 
year {U.S. ABC, Regjlatory Guide, 1.42, June 1973). 

6« Are there food sources, other than milk, that can contrib- 

ute to the annual radiation dose? YES. For 1-131, there may 
be uptake from vegatablss approximately equal to that from milk 
(Fed. Radiation Council, "Pathological Effects of Thyroid Irrad- 
iation", Advisory Comm. Div. of Med. Sci., Sat. Acad. Sci,, Deo. 
1966); Sr-90 may be present in milk and vegetables as well as in 
the bones of fish and of other animals; G8-137 is found in the 
flesh of fish and animals, and may show biological concentration 
factors of 2D00 or more (CS. ABC, Docket ITo. RM-50-2, February 
ao, 1974; Nat. Acad. Sci., Nov, 1972; Wis. Bleo. Power Co., 
PSAR); and all three of these radionuclides have been found in 
milk (Wise. Dept. Health 4 Soc. 3erv. , July 1969 through June 1971). 
Cheese may contain up to 7 times as much radioactivity as an equal 
amount of milk, allowing for radionuclide half-iife and the age of 
the cheese (Nat. Acad. Sci., Nov. 1972). Cranberries and soybeans 
have als6 been shown to be sources of 3r-90 and Cs-137 (U.S. Dept. 
HB^y, "Radiological Health Data, 1962 and 1963). 

7. What are the relationships between rswiionuclide concentra- 
tions and doses? For 1-131, the Federal Radiation Council's 
"Radiation Protection Staide" (HPQ) suggests, for children, that 
daily oonsuniption of a liter of milk for one year, containing 

80 pCi I-13l/liter, would yield an annual dose to the thyroid of 
500 mr. That is, 80 x 365 or 29,000 pCi*^ would yield a 500 
mr-dose, or 58.4 pCi is equivalent to one mr annual dose - (Ltr. 
from D. F. Knuth, Director Regional Operations, U. 3. AEG, to 
Senator Villiam Proxmire, October 15, 1974). This concentration 
dose relationship for 1-131 is also seen from the ABC limit of 
15 mr/yr. thyroid dose, which corresponds to daily consumption 
of one liter of milk containing the suggested maxinmm concentra- 
tion of 2.4 pOi of 1-131 per liter (U. 3. ABC Regalatory Guide 
1.42, June 1973). Thus, 2.4 pCi/liter would amount to 876 pCi 
of I-13l/yr. which is equivalent to an annual thyroid dose of 15 
mr or 58.4 pCi/mr (see Table 1). For 3r-90, the concentration/ 
dose relationship suggests an annual bone doss of 26 mr for a 



ooacentration of 11.8 pGl/lit«r (U. 3. SPA, ORP/aiD 72-2, 
June 1971). It appears that 158,5 pGi of 3r-90 Is •quiv- 
alant to one mr annual dose (See Table II). The oorre«- 
ponding relationship for Cs-lS? la 36,300 pCi/one ar annual 


Rt. 5, Box 171, St«7«a8 Point, T/lsconsln - 54481 



Mrs. Allen. We already have this knowledge about radiation 
risks. The NRC doesn't really need more data in that area. It needs 
strong decisions. 

Mr. Turner. One point. Mrs. Allen, who monitors the radiation ; 
NRC? Do they have their people out there monitoring? 

Mrs. Allen". No. the NRC does not monitor. This is a very com- 
mon misconception. The public assumes that the AEC is monitoring 
the radiation. "Wlien we approach the State agencies and ask them 
about monitoring radiation, they say it is not up to us. That has 
been preempted. 

That is taken over by the AEC-NRC. When you approach the 
NRC, their response is we have no personnel in Virginia. That is not 
up to us. We set tlie standards. We make the rules of how much 
is acceptable or is "as low «?is practicable" as is the phrase, but it is 
up to the utility to do the monitoring. 

So, again we have the utility monitoring itself. The actual radia- 
tion risk is left to the integrity of the utility. This is an exceed- 
ingly disturbing fact. 

Senator Metcalf. Mrs. Allen, you are saying that there isn't any 
public, independent agency that is monitoring radio activity or 
radiation ? 

Mrs. Allen. As I understand it. there are monthly collections by 
the State agency. 

Senator Metcalf. Spot checks? 

Mrs. Allen. The State health department; yes. They check the 
shellfish in the area near Surry and they check the milk. Then they 
submit match samples to the AEC. 

The last time that we talked with the health department, which 
was admittedly some monhs ago, they had never received any 
feedback on these matched samples from the AEC. 

So the majority of radiation monitoring is left to the utility 
itself. This is the extraordinary point that is made by Dr. Lyon. He 
has researched this very carefully in the entire Wisconsin area, 
and then shows how he has taken his findings back to the AEC and 
tried to find out why proper iodine levels are not watched over 
around this plant that is operating in Wisconsin. 

The difficulty is trying to find out who is in charge. The levels 
are set by the AEC, but the actual monitoring is done by the utilitv 

The levels themselves should be a matter of great concern be- 
cause they are only kept as low as practicable and that phrase 
means the levels of radiation are what are practicable, technologi- 

This does not mean what is desirable physiologically, Init what is 
practicable technologically. 

Secondly, major changes in that allowable amount of radiation 
are brought about almost always by outside agitation, not by con- 
cern about radiation risks within the NRC. 

Senator Metcalf, Do any of these officials of the utilities live 
there in or adjacent to this plant? 

Mrs. Allen. I am sorry; I didn't hear tlie question. 


Senator Metcalf. Do any of the officials of the utility live in or 
adiacent to the plant? , ■ . ^^ 

Mrs. Allen. I am sure tliey mnst. The major executives of the 
utility live in Richmond. I am sure they have to have people who 
live near the plants. But this is part of the response always when 
one raises this question of radioactive risk, is to say "we live near 
there, too. Obviously, we are confident."' 

Senator Metcalf. 'You live or die for our utility. 

Mrs. Allen. That is rijjht. I would like to make one more point 
on this whole problem of allowable amounts of radiation. A quiet 
change has been made in the last few months that T think greatly 
increases the risk. 

In 1973, I believe the summer of 1973, the regulation was that 
only 15 millirems per year were allowable per reactor site. So that 
meant that if at North Anna you have four reactors running, those 
have to run cleanly enough so that the total is 15 millirems. 

That has been changed within the last few months so that the 
15 millirem limits applies only per reactor. So it means now that 
the larger site you live near, the greater the risk. 

Senator Mercalf. This is four reactors? 

Mi^. Allen. That is right. 

Senator Metcalf. So it would be four times 15 millirems? 

Mrs. Allen. Right. 

Senator Metcalf. So you would have four times the allowable 

Mrs. Allen. This is the way we read that. Yes. The question of 
cumulative radiation always lias to be addressed if you get this 15 
millirems steadily each year. 

That is taken up in Dr. Lyon's paper. 

Finally, to my last paragraph, to repeat, the NRC doesn't really 
need more data". It seems to us to need strong decisions. 

Enough information regarding nuclear risk and continued mal- 
function — that is an area we could go into for hours, is the amount 
of malfunction, component error, personnel error, that are happen- 
ing every day — exists today to justify a prudent regulatory decision 
to derate existing plans and delav future nuclear reactors. 

According to the June 1975 Bulletin of the Atomic Scientists, 
nuclear industry spokesmen, themselves, believe "that a full and 
frank discussion of these issues" — these issues being the risks, the 
costs, the wastes, the reliability — "a full discussion of these issues 
would result in no further use of light-water fission reactors for 
generating electricity." 

The coalition hopes that the Avork of this committee, with its 
very admirable concern for adequate and accurate information, 
will lead to just such a full and frank discussion of nuclear tech- 

And I thank you very much for your invitation and for the op- 
portunity to appear before you and I would gladly answer any 
questions if it didn't take too much of your next witness' time. 

Senator Metcalf. Did you let that mapping — how far is it from 


Mrs. Allex. Seventy miles. 

Senator Metcalf. You scared me to death. 

Mrs. Allen. Good. 

Senator Metcalf. I have no questions. I think you have raised a 
most significant and important question that certainly this commit- 
tee and other committees in the Concrress, includino; the Joint Com- 
mittee on Atomic Energy, should investigate. 

I know that every one of the members of this committee is going 
to be concerned and interested and involved in investigation. 

I don't have any further questions. I have a lot of future ques- 
tions, but they are matters that my staff can investigate, but maybe 
counsel has a question. 

Mr, TtTtNER. I have two, Mr. Chairman. Could you give the com- 
mittee the benefit of your knowledge with respect to present con- 
ditions or events at North Anna and Surry that you feel bear out 
your original claim and concern ? 

Mrs. Allen. Yes, in terms of foundation conditions and the right 
to look at fundations before the construction began. 

As I said in my testimony, the AEC adjective for the liquefaction- 
prone foundations at Surry was "suspect." We now know that there 
has been some concern about differential settling at Surry and 
that is currently under investigation. 

I think that the NRC has not issued any report on that at the 
moment and does not see it as a major problem. Xevertheless, the 
settling beneath the Surry reactors is currently under study. 

Mr. Turner. At North Anna, are there not preliminary indica- 
tions of stress? 

Mrs. Allen. Yes, at North Anna there is a real problem. Inci- 
dentally, both Surry and the North Anna problems are being con- 
sidered for some kind of enforcement action by the NRC, as I 
understand it. But at North Anna, there has been extraordinary 
settling beneath the pumphouse which has to do with the cooling 
water for Units 1 and 2. 

It was originally reported as being expectable amount of settling. 
Now in an AEC "report, dated July 8, NRC report, dated July 8, 
it is reported that the amount of stress on the pipes there is beyond 
that predicted and, therefore, is a problem that is having to be 
studied further. So the condition of the site is still a problem, both 
at the pumphouse and in the reactor excavations themselves. 

Mr. Turner. Assuming there is an injunction against further nu- 
clear operation of these two plants at" North Anna, what can be 
done with them? There is a $1 billion plant there. What can be 
done with it? 

Mrs. Allen. I don't pretend to any great technological expertise, 
but we do know that there was a nuclear plant by the name of 
Patlifinder, which was converted from nuclear to coal, under the 
guidance of the AEC, because it evidently was a problem in nuclear 
operation itself. 

Secondly, and perhaps of more significance in terms of how 
things have changed between the 1960's when these plants were 
planned and now is that the peak load demand in Virginia for the 


year 1985 has dropped about 8,000 mco:a\Yatts, which is the equiva- 
lent of ei^ht nuclear power plants. 

So we really do not need the amount of nuclear technology that 
was planned in the 60's for the 1970's and in the 1970's we are much 
more aware of the kind or risks involved than we were in the 1960's. 

Senator Metcalf. Thank you very much for calling this to our 

Mrs. Allen. Thank you for your very courteous attention. 

Senator Metcalf. I just can't tell you how concerned I know all 
of us are going to be on the basis of the information that you have 
presented here. I am just thinking of how we can best continue the 

I think that I will immediately call it to the attention of the 
Joint Committee on Atomic Energy. I am certain that the people 
on the Atomic Energy Committee are aware of the dangers of 
nuclear construction oii geological faults. There m enough unknown 
danger without going forward with these known things. 

So thank you very much. 

Mrs. Allen. You are very welcome. We commend your concern 
and once again we thank you very much for the opportunity. 

Senator Metcalf. I know that Mr. Turner and other members 
of my staff, both on the majority and minority sides, will be in 
comniunication with you. This is not the end of this investigation. 

Mrs. Allen. Thank you, we will gladly share with you any of 
our records or materials that we can; thank you again. 

Senator Metcalf. Thank you very much. 

[Other pertinent information referred to in the record follows:] 



N'Al^C (Prepared by the North Anna Environmental Coalition) 

1968 borings at North Anna site reveal chlorite seam ; 

"areas showing small movement noted" per 8/8/73 
testimony of Joseph Fischer, geologist with Dames & Moore, Con- 
sulting Engineero in the Applied Earth Sciences. (Note: Dr. John 
FunlOiouser, geologist at John Tyler Community College, says "There's 
a chlorite seam there because it's a fault.") DAILY PROGRESS 8/18/73 


extensively jointed. . .cross joint set is often found near contacts 
between two rock types at the site... at times clay-filled as much as 
2 inches. ..two sets of diagonal joints in direction of maximum shear.. 
..usually smooth with some clay filling, and are sliclcensided in 
places. ..extensive but widely spaced..." 

March 21, 1969 VEPCO ftpplies for Construction License for Units 1 

8e 2; also for a facilities permit. 


NORTH ANNA POWER STATION: "...our investigation re- 
vealed occasional seams of weathered rock to significant depths below 
the surface of relatively fresh rock. We do not expect these seams 
to be tliick enough to affect mat performance .. .Honever, it^ i^ re c 011- 
giendod that the rock exooaed at foundation level be carefully examined 
by an experienced f;eoloyist . . . 

"Available evidence suggests that stability problems may exist at 
least in the south to southeast portions of the reactor cuts. Po- 
tentia lly unfavorable joint and rock conditions have been observed 
and could influence excavation stability..." 

Several courses of action then suggested, with the following con- 
clusion: "If this sequence is adopted, it will be neceasary for an 
experienced enyjincering; geologist t£ thoroughly and continually in- 
spect the excava>ion as it^ progresses ." 

Sept. 18, 1969 Letter from Peter Morris, Director, 

AEC Division of Reactor Licensing, to VEPCO, asking 
for more information regarding the known fault, k'A miles from the 
North Anna site. "Have any earthquake epicenters been localized 
along this fault?" Mr. Morris also asks if new Dames & Moore data 
confirm previous seismic survey. (NAEC researcher could not find 
VEPCO's reply, perhaps because of rather informal filing system.) 

Feb. 23, 1970 visit to North Anna Unit 1 Excavation site by 

Dr. John Funkhouaer, geologist with John Tyler 
Community College, who identified fault visible because of chlorite 
seam and mentioned fault to VEPCO personnel. 

Feb. 27, 1970 visit to the Virginia Division of Mineral Resources 

by Mr. John Briedis, Dames & Moore Project Geologist, 
identified on VDMH Interview Record as also representing VErco and 
Stone Sc Webster: "Mr. Uriedis brought 6 samples of rock raaterial»i 
from the foundation of the nuclear power plant for our examination 
and mineral identification. These 8um[)le8 included biotito granite- 



OLOGY P\Gli, 2 

gneiss, epidotizod biotitc, granite s.»eisB, and serpent iniy.ed chlo- 
rite foliate wit li abundnnt si ickennides . . .The cUlorite roclc, which 
'^Zc^m in thin concordant beds within the country rock, forms alip 
pinnoK 50° to the .a.E. tliat have caused the coliapBO of the side 
wnlla of the excavation currently bein g made." 

March 10, 1970 Heturn visit to VDMH by Mr. John Briedis. Interview 

record entitled "MincraloRy of f;-.u).tod rockn which 
had caused landslides." Report incomplete— "Because of a break- 
down in X-ray equipment, we were only able to analyse one sample, 
which was a chloritic slickcnside sample." 

March 19. 1970 VDM« Report No. 553 with geolofiical analysis by 

Dr. James L. Calver released to VE1>C0; references 
made to "...weathered rock with slickenside: chlorite..." 

March 25, 1970 Visit to North Anna Unit 1 Excavation site by 

Dr. Bruce Goodwin, Chairman of Geology Department at 
the College of William and Mary, at the invitation of Dr. John 
Funkhouser, who wished to have a struttural geologist confirm his 
fault determination at the site. So confirmed. 

Mav 10 1970 Letter from VKPCO Vice-President Stanley Racone to 

^ ' AEC Director of Reactor Licensing, Peter Morris, 

describing progress at the North Anna site: Excavation for Unit 1 
reactor containment complete .. .Unit 2 progressing. . .Placement of 
porous concrete drain beds in excavations scheduled for mid-June. . . 
Exposed wall cuts to be gunited. . .Reinforcing steel to be placed 
in position in July ... (Note— Construction License Hearings still 
6 months away) 

AuKUst 25 1970 Letter from Ragone to Morris requesting exemption to 

' proceed to be granted by Septerr.ber 15, 1970. 

Cent 'i 1970 Letter from AEC Harold Price to Ragone: Exemption 

' granted for installation of portions that are fin- 

ished below grade level. "Granting of exemption shall have no 
bearing on subsequent construction permit .. .Granting does not con- 
stitute approval of type or adequacy of method of J-J^^^/^^"- 
(NAEC note-Who is responsible for the quality control of woik 
done during such a period?) 

Nov 23-25, 1970.... Construction License Hearings on Units 1 & 2. 

Nov. 25 ^J, ^^^^ researcher could find no discussion in the re- 

cord of geological anomalies though Dames & Moore geologic Joseph 
Fischer present. It appears that D & M printed studies -"^ into 
the record without questioning by the Atomic f ^f ^J °^^^V'/™£^SES 
Board. In the bound edition of TESTIMONY FROM APPLICANT o.lTNESSES 
there is none from Fischer, though he is described in VLI>C0 s 

March 1971 Construction License granted on Units 1 & 2 with 

MoLc Safety and Licensing board commenting that the record 
showed "no unresolved questions about radiological f^^fj- 
(NAEC note-AEC Attorney Kartalia told NAEC on Aug 0. 1973 that 
the fault is more « radiological problem tha» an environmental one.) 




"Kock in the eite area i5 extensively jointed... a set (of joints) 
trending approximately N 30° to 50° E and dipping approxinuite ly 
50° SE often Hhovvs revcrKC shear movements. It is moat frequent 
at or near hornblende Rneise contact .. .They are clay or chlorite 
filled, smooth, and show movcmentfi up to 134 feet . . .Most shear 
movement in hornblende gneiss, indicating hornblende gneiss lees 
competent that gi-anite gneiss..." 

Conclusion: "The site is apparently free of faulting and struc- 
tural anomalies." 

(NAEC recalls Mr. Fischer's stating at VEPCO's August 7, 1973 
news conference that movement defined a fault.) 


"In view of extensive investigations made for Units 1 & 2, taking 
and testing of undisturbed samples nrere kept to a minimum... 
Parameters for 1 & 2 were evaluated and modified where necessary 
for 3 & k...k7 additional borings made..." Boring logs show 
several references to "highly fractured zones with chlorite 

March 15, 1972 VEPCO ENVlKONMt;NTAL SUPPLEMENT- -Vol. I--Unitfl l~k: 

"Surface mapping, boring data and the excavation 
for Units 1 & 2 all indicate continuity of strata. . .faulting at 
the site is neither knowi nor is it suspected . Site conditions 
reveal that all safety Class I structures will be founded on hard 
crystalline rock or on dense residual soil..." 

Vol. II of the same ENVIRONMENTAL SUPPLEMENT lists among geologists 
inteirviewed regarding Unite 3 & ^ Dr. Stephen Clement of the Col- 
lege of V/illiam and Mary. It is important to note that Dr. Clement 
accompanied Dr. Bruce Goodwin and Dr. John Funkhouser to the North 
Anna site in March of 1970 when Dr. Funkhouser 's fault identifica- 
tion in the Unit 1 excavation was confirmed. 

Jan. 3 - April 28, 1973 Excavation for Unit 3; displacement noted. 

March 9 -June 15, 1973 Excavation for Unit 4; displacement noted. 

April 15, 1973 VEPCO staff geologist reported fault phenomenon. 

April 2't, 1973 VEPCO initiated fault study. 

April 30, 1975 Notarized letter from VEPCO's Ragone accompanying 

FINAL SAFETY ANALYSIS REl'ORT ON UNITS 1 & 2 which states " Faulting 
at this site is neither known nor ia it suspected ." 

May 7 - 10, 1973' •• .Construction License Hearings on Units 3 & 4; no 
mention of geological problems to Atomic Safety & Licensing Board. 

May 17i 1973 liccord of Construction License Hearings closed. 

May 17, 1973 AEC received VEPCO's notice of fault at the site. 

Aug. k, 1975. •>•.•. .North Anna Environmental Coalition informed the 
public of the fault "running through all k exca- 
vations" at the North Anna Power Station site. 


KASC Chronolog/ Page 4 

(llotej There is acme overlap in dates with the previous page because when page 3 
was written, NAEC was unaware of the AEC affidavit of July 31, 1973. Other in- 
formation i8 added in the interest of a more complete chronologyj 

May 29, 1975 NAEC showed film at LouieaHigh School: "HOW SAFE ARE 

AMERICA'S ATOMIC RilACTORS?" horth Anna worker in attend- 
ance 1 escribed drilling through rock and hitting clay at the site and 
wondei ed if such a situation represented an earthquake hazard. 

July 24, 1973 NAEC received call from responsible Louisa citizen, con- 
firming the major geological nature of problems at the 
power station site, and urging NAEC to pursue inquiries with AEC and others. 

July 25, 1973 WAEC called AEC Regulatory Staff Counsel who stated that a 

fault had been discovered to run through "all four excava- 
tions at the reactor site. (This fault is described in an AEC meaiorandua 
dated June 21, 1973.) 

Note: At this point, the public still has no knowledge 

of the site problem; neither does the Atom ic Safety 
and Licensing Board who just 2 raonths earlier heard 
Construction License testimony for Units 3^4. 

July 31, 1973 The AEC Regulatory Staff submitted to the Atomic Safety and. 

Licensing Board an affidavit from its geologist, A. T. Car- 
done, stating that it is his opinion that the safety question raised by -• 
the discovery of the fault can be resolved on the basis of VEPCO's report 
to be submitted August 15, 1973. 

August k, 1973 NAEC released the story of the fault to the press. 

August 8, 1973 VEPCO held a major televised news conference in Richmond 

at which Cardone's affidavit was read and where all but 
one of a panel of geologists attested to the nuclear safety of the site. 
(NAEC attended and questioned this assurance, based on zero AEC experience .). 

August 22, 1973 NAEC asked the Atomic Safety and Licensing Board to reopen 

Construction License Records on the 4 North Anaa Units and 
to convene a public hearing in Louisa on the matter. NAEC also submitted evi- 
dence in support of its contention that VEPCO bad not acted in good faith. 

August 23, 1973 The Atomic Safety and Licensing Board asked VEPCO and the 

AEC Regulatory Staff for "views on an appropriate mode of 
dealing with the question" of the Cardone affidavit. 

August 31, 1973 VEPCO replied that it had submitted its DAMES & MOORE re- 
port wliich would allow the AEC Staff to "resolve any safety 
questions involving geologic conditions at the site." 

August 31, 1973 The AEC Staff replied that it was reviewing the D & M Report. 

September k, 1973. • .NAEC wrote to Mr. Robert L. Ferguson, AEC Project Manager 

for North Anna, to request an ASC investigation of the site 
that would go far beyoad the Dames & Moore report to include disinterested 
scientists who were expert in nuclear plant geological requirements. 

September 5, 1973... NAEC wrote to AEC Regulatory Staff Counsel David Kartalia 

to repeat the above request. NAEC also expressed shock that 

the D 8c M report treated the poaaibility of increased seismicity from an 
irapoundmen t with a 2-paragraph dismissal . 


NABC Chronology Page 5 

September 11, 1973-.NAEC sent a formal letter to the AEC Regulatory Staff re- 
questing tb»t no construction liceaaea be granted for North 
Anna Unite 3 & ^ until the Board had heard aad questioned expert witnesses 
on the implications of the fault and until the Board had studied the results 
of state and federal investigations; further, NAEC requested that VEPCO's 
construction licenses for Units 1 & 2 be revoked for "material false state- 
ments" about faulting at the site. 

September 21, 1973.. Mr. Robert L. Ferguson, AEC Project Manager for North Anna, 
sent VEPCO an 8-page "Request for Additional Information," 
including questions on ground water problems and the risks of increased 
se ismicity from an impoundment. 

September 27, 1973..THE WASHINGTON POST published Hal Willard's story on the 
North Anna fault: "The 'Devil' and the Reactor," which 
cr -ated a furore in the Congressional Joint Comtnittee on Atomic Energy. 
(>lr. Willard believes that without NAEC there would have been no AEC 
inveetigatio* at North Anna.) 

September 29, 1973.. Atomic Committee on Reactor Safeguards (ACRS) visited the 
North Anna site. 

October 17, 1973. ...The Atomic Energy Commission ordered VEPCO to show cause 
why construction on its North Anna Units 1 & 2 should not 
be stopped until completion of an AEC investigation of a geologic 
fault at the site; AEC also requested an evidentiary hearing on geo- 
logic faults in Units 3 & 4. 
SoTJt 19 - Oct. 31 1973, and Jan. 17 - Feb. 27, 1974. ..AEC Inreetlgatlonof fault Info 

Uoveiber 6, 1973 VEPCO requested a hearlngln response tc Show Caas* order 

November 6, 1973 Meeting in Fredericksburg to orient new ASLB Chairman Parmakides 

Hovember 26, 1973 HABC repeated request to AEC for independent investigation; 

also asked no cement ing of excavations pending completion 
of public hearings. , ^ „,.-,..* j 

December 22, 1973 HAEC received ABC notice that Messrs. Parmakldes, Chanlett, and 

Brigga given authority to rule on YSPCO's request for hearing. 
December 29, 1973 BBC visit for fila re North Anna 

January 24, 1974 HAEC filed petition to intervene in Show Cause Hearing: 

llarch 20 -*Aprll 4, 1974... Show Cause Hearing in Louisa, Virginia 

June 27, 1974 Show Caase Board ruled site safe 

November 8, 1974 Show Cause ruling appealed to AiX: Appeals Board by HAEC 

January 28, 1975 KA2C appeal denied , , , •■ » ,. „„+„» 

JanuS 29/30. 1975... Hearing on Concealment issue of "-f ^^f ,^^,\f ^^^'^'^^^ . 

IvTil 4. 1975 VEPCO convicted of 12 "material fUlse statanents 

««r28/29 1975 Hearing to determine penalty; HHC recommends $60,000 fine 

i U I975!! nLc fflea "Petition for Beview of a Decision of the Atomic 

June 11, 1975 .^^^^ ^^ Licensing ^peal Board" with U. S. Court of Appeals 

for the District of Columbia Circuit 



j^ P.O. BOX 3951 (804)282-8817 


NABC COHtm^^^HjIiS WITH AND RESPONSES FRO^: (''°3) 832-3983 or {804)293-6039 

State Water Control Board (S*CB) 

Relevant background information: Minute 5' — Amend nents to Water Quality StaiJ irda 
adopted April 24, 1973: 

A. All State waters shall be maintained at s ich quality as will permit all 
reasonable, beneficial uses. .. including game fish... 

B. All State waters shall be free fr.>m subst inces. . .which will interfere 
directly or indirectly with reasonable, beneficial uses... or which are 
inimical or harmful .. .Specif ic substar.ces to le controlled include . .toxic 
substances. . . 

SWCB "Notice of Hearing" on 401 Certificate for /EPCO's North Anna Nuclear Power 
Station stated that such a certificate would be issued only after a review demon- 
strates that VKPCO's discharge of treated cooling water... 

3. will assure protection of put lie water supplies. . .protection of wildlife, 
and allow recreational activitits in and on the water... 

SWCB'e "Fact Sheet" of >lay 15, 1975 on VEPCO's 4ol Application to "discharge 
treated cooling water into the r-sters of Virginia" stated that the receiving 
■•ters in Lake ..nna are classified as Class III- A waters and are to be suitable 

"for public or municipal water supply, secondary contact recreation, 
propagation of aquatic life, and other beneficial uses..." 

June 19, 1973 SWCB HEARING ON N.)RTH ANNAAtPCO 401 Certificate: NAEC 

presented petition urging SWCB to act so as to insure that 
effluent from NAPS would not be detrimental to Lake Anna; NAEC also raised 
questions regarding radioactive ('toxic substances") and thermal pollution, 
adequate monitoring, and VEPCO credibility in the light of the Surry fine. 

Jun« 20, 1973 NAEC mailed request to SWCB and staff to reconsider its S/V) 

abdication of radioactive pollutant responsibility to the AEC 
and act to enforce AEC standards vithin Virginia. 

Augi st 17, 1973 NAEC wrote SWCB Executive Secretary Eugene Jensen asking 

delay in final balloting on 401 certificate for NAPS plus 
reopening of June 19 hearing to consider important facts known but not 
revealed by VEPCO at that time: the existence of a fault beneath all 4 
reactors and the seepages of ground water through the chlorite seam therein . 
Geologists had raised the possibility of ground water contamination resulting 
from a reactor leak. 

August 22 and 24 Telegram requests for delay and study to SWCB and Jensen. 

August 29, 1973 Letter from Jensen to NAEC President William Warren stating 

that after the Bo ird considered NAEC's letter, it voted to 
grant the 401 Certificate which deals "solely with limitations on the dis- 
charge of waste heat from the steam turbines " 

NAEC Note: Compare this statement with SWCB'e "Notice of Hearing" and 
"Fact Sheet" above. 

X Prepared at the request of CONGRESS WATCHv a Nader organization in Washington, D.C. 



September 6, 1973. •• .Letter from Jensen to Senator Dalton who had inquired on NAEC's 
behalf regarding the 401 certificates. Rather than commenting 
upon waste heat, Mr. Jensen writes: "The certificates approved the construction 
and o pe ration of Units 1 & 2 and the constru ction of Units 5 & '*•" 

To Senator Dalton, he mailed the certificates, and Senator Dalton kindly forwarded 
copieH to NAGC. 

September 24, 1973. . .Letter from Jensen to Senator Dalton: "At the September 17-18 
Board meeting the Attorney General's Office reported to the 
Board that site characteristics of the VEPCO North Anna Power Station are in- 
exorably linked to reactor safety and, therefore, are totally within the pur- 
view of the Atomic Energy Commission..." 

September 13 and October 1, 1975. . .further corresi>ondence from NAEC to SWCB asking 
that they inform the Coalition regarding ultimate protection 
of Virginia waters from toxic substances. 

S tate Department of Smersency Services (SDKS) 

Relevant background information: On page 13-3 of AEC's SAF OTY EVALUATION Of THE 
NORTH ANNA POWER STATION UNITS 3 & 4, issued December 29, 1972, is a statement that 
VEPCO will have an emergency plan for North Anna similar to that submitted for the 
Surry Unit 1 & 2 Operating License that contains arrangements with Federal and State 

July 8, 1973 NAEC wrote to SDKS Director Thomas Credle, requesting a copy 

of the Surry emergency plan; also requested information re- 
garding Stale plans for handling highway acciaents involving radioactivity. 

July 25, 1973 NAEC called SDES to inquire why letter had not been answered; 

NAEC told that SDES awaiting copy of revised plan. NAEC 
reitf-rated request for original referred to in 12/29/72 Evaluation. 

July 26, 1973 Charles aawtelle of SDES feturi.ed NAEC call; discussion of 

who has emergency responsibility — answer not clear--largely 
VEPCO with SDES "coordinating." Knows nothing of personnel training. 

August 3, 1973 bDES Director Credle called NAIX:; said that in evacuation local 

government has responsibility, "supported by this office"; 
displ< ased because VEPCO originally left out local government; must be partner- 
ship ith Health Departmeat people on nuclear problems, and Civil Defense on 

movem. nt . 

August 7, ^73 NAEC visited SDES office, spoke with Mr. Sawtelle who called 

VEPCO regarding Surry plar requested by NAEC July 8; mailed 
by VE CO to NAEC August 8, 1973 

October 1, 1973 NAEC wrote Mr. Credle to inquire status of North Anna Emergency 

t'lan in light of pending operating license hearing. 

October 23 1973 NAEC repeated request for information. 

Note: NAE; has never received wr - tten commijpicatio.n of aay klad from SDES. 
(Bulletin — Nov. 12 — Radio just anrounced Credle'.s resigination to become 
federal Disaster Assistance \dministrator. ) 



State Air Pollution Control Board (SAPCB) 

October 1, 1973 NAGC wrote SAPCB to Inquire their role and responsibility in 

protecting Virginia air from radioactive effluents. 

October l8, 1973 SAPCB answer: "...the Bureau of Radiological Health of the 

State Department of Health has for some time had a capability 
in radiation surveillance. . . Our Board has no radiation monitoring equipment , 
has no specialista trained in this field and does no day-to-day work in it . 
The Health Department Bureau has such equipment and has the experts. W« re- 
ceive its reports. Our staff meteorologist is working with one of the Bu- 
reau's people on develo iment of one particular surveillance project for the 

North Anna plant on milk We have no (radiation) standards. The State 

Board of Health adopted regulations some time ago in compliance with Atomic 
Energy Commission regulations." 

State Department of Health 

July 9, 1973 NAEC wrote Dr. M; I. Shanholtz, State Health Conmissioner, to 

request descriptions of Surry and North Anna radiological 
monitorin g programs , training programs for radiological emergencies, names of 
staff members involved in the foregoing, and n ames of liaison pei-sonnel between 
Health Department and ViPCO/AEC. 

July 25, 1973 NAEC called tc request answer to dbove letter. 

July 27, 1973 Dr. Shaiiholtz's letter received; referred NAEC to Mr. Bryce 

Schofield, Director of the Bureau of Industrial Hygiene, 
Dr. Phillip Walton of tlie Medical College of Virginia Radiation Safety Office, 
and sait? that Virginia .State Police would contact his department's Radiological 
Health Ssction and Emergency Specialists throughout the state. 
(Note: Vo descriptions of monitoring or training programs included.) 

August 1, 1973 NAEC called MCV's Dr. Walton who said that plans to date have 

nothing to do with North Anna; Dr. Walton is a physicist; 
says that list of telepjxone numbers has recently been updated. 

August 1, 197 5 NAEC called local state police who knew nothing of radiation 

procedures; called Appomattox who gave the officer two 
telephone numbers to call in the event of an emergency. 
(Note: No knowledge of radioactive shipments of truck markings.) 

October 1, 1973 NAEC wrote Dr. Shanholtz again for information regarding 

Radiological mon itoring at Surry and North Anna, emergency 
training programs, namss of Emergency Specialists, credentials of B. Schofield. 

October 5, 1973 Dr. Shanholtz sent none of the ppecific infomaation requested 

but commented "we think our existing programs are sound." 

State Corporation Commission (SCC) 

Relevant background information: AEC's FINAJ, BNVI WNMliNTAL IMPACT STATEMENT, page 
1-5, lists the State Corporation Commission ; s having granted VEPCO "certificates 
of con^enienc^ and necessity' for North Anna Power Station in 1970. 

October 1,8,1973 NAEC sent letters of incuiry to SCC re certificate status. 

October 24, 1973 SCC attorney told NAEC neither letter ever received; 

NAEC resent letters by certified mail. 



£ tate Corporation Commission (cont.) 

November 11, 1973 NAEC received parti? 1 answer to questions posed in 

letters of October J and <i; SCC's answer attached to 
tnis report. Burden < f it s that cei tif icates were granted to VEPCO 
b if ore environmental Jegisl. tion was v issed and that permission covered 
a.l 4 units. NAEC plans to resubmit c, lestions which were not covered. 

State liivision of Parks 

Relevant background informetion: AEC's FINAL ENVIRONMENTAL IMPACT STATEMENT 
on the North Anna Power Station, issued in December, 1972, contains letters 
from this department raising questions about public safety at the planned Lake 
Anna recreational facility. 

October 1, 1973 Virginia Commission of Outdoor Recreation released news 

story that ^million dollars of State money was about to 
be spent to purchase shore-line property for a park at Lake Anna. 

October 3, 1973 NAEC callerl Division of Parks to see if their safety 

questions .o AEC had ever been answered: no, never. 

October 9, 1973 NAEC wrote Division of Parks to inquire formally how 

such land purchase could be justified without safety 
assurances and with the know edge that a rural site had been chosen to 
avoid large numbers of people that might be drawn to a park. 

Oc ober l6, 1973 Parks Commissioner Bolen replied that park siting cri- 
teria have nothing to do with VEPCO plant siting cri- 
teria. Determinants are ecoi.omy, shoreline, and minimal drawdown. 

October 23, 1973 NAEC issued news release objecting to the dangerous 

illogic of the foregoing. 

State Office of tlie Attorney Geneial 

Since July 4, 1973, NAEC has been in varying degrees of communication with the 
office of Andrew Miller, Virfjinia's Attorney General. *e asked his support 
of our request for re-opened hearings on North Anna to enter the latter of the 
fault. He deferred such action, pending the outcome of his requested investi- 
gat on by the Virginia State Geologist. 

Aft' r repeated requests tor information regarding State respansibi lity for 
toxic substances, NASC received the attached letter which, as expected, stresses 
AEC responsibility for all such radiological problems with the exception of 
monitoring by the State Board of Health — from whom we have been unable to get 
am specific monitoring information despite sex'eral attempts. 

State Office of the Governor 

The Governor has never answered any NAEC letter directly but delegates polite 
non-committal answers to the Secretary of Commerce and Resources. 

To date, reporters have been unable to get any response to Dr. Lapp's call that 
thi- Governor appoint an inoependent commission to study the fault situation 
at North Anna. '^ 



(Infornntlon t-ikon from /iKC Invest ipat ion matorliila unlouo othcrwico Indictted) 

Mijo r Porsor. r.n 1 In volved ! 

HK?!B)-3T h. '£::c.W::.:aV — Ll?-<pcn m:\ri between construction people, STO'rE & WESOTIIR, and 

the VEPCO hcTidc^uartora. .,";^.-V:-;?CO" on the ch.'irco at tho alto; 

" I atto-nptod to stay abrc,-mt of vihnt w.s roirr or., both at the di-n snd Bt the 

powerho-80." Official title: Kooident Eneinocr. 

KOBER? J. KE^Y — STO>S & V/EBSTER ceoloRist on tho North Anna oito; responsible for 

foundation invoBtleation and foundation approval. 

J.)HH BKIEDIS— STO:CE & V7ESSTER ceolocist in Boston in 1970; in 196B had boon Project 
Geoloeiet at IJorth Anna for D/JJES & UOORE. 

DAVID P. LIcKITTRICK — STOrS & VfEBSTER load geotechnical engineer for Uorth Anna 
project; based In Boston. 

WILLUO.I F, SWIGER — STOiffi & V/E3STER civil engineer in Boston. 

Significant Eventa : 

Early February, 1970. . . .Eoclt elide and "precarious joint systcn" in Unit 1 excavation 
. reported by Henry at Korth /aina to ircKittrick in Boston. 

February 4, 1970 lIoKlttriclc informed Brlcdls of North Ajina problems. 

Februaiy 5, 1970 Uc}:ittrick and Eriodis vicitcd tho Korth iVnna site. 

I/anar craclcs noted by project personnel and KcKittrick at 
Elov. 270...P.r ,".£ bolt anchorage retained although etccl hcf.rin^ rlntco unforr.od . 

February 7, 1970 Drilling pattern laid out and shot in ftn effort to etabiliao 

tho slopo; apparent following blasting that bench, Elev, 246, 
could not be retained; drag line excavation to stable bedding piano. 

Middle February, 1970. . .Clean-up operations and excavation of Lift # 3 reveal chlorJ_to 

Ftbruar.\ fl I-IIO ... V.j.-fk, ACC .0,^. u.1^. r>.+.<i """^^-b/* strj^ <^ «\l.^tJ I: ? h ^IJ^'t. Ucr^clThMs 

February 23, 1970 .'vislt to Unit 1 excavation by Dr. John i?\inkhouoor, goologiot jj.i.-i,.^ 

with John Tyler Ccir_iranity College; Dr. Funkhounor told his p<v 
guide, VEPCO Resident Eiiglnoer Jiiglcnan, that he had a " vrry w\\a'.v\l ncolor.ic '['"'^''^i 
feature" and asked per.-nlssion to "return with another geologist." ph,^ £» 


(KAK note: ).tr. Sngloaan knew Dr. FunJ-Jiouser's profession. In tho light of the '^<'«"^'» 

excavation difficulties and the iioston visits to consult thereon, 
it would s^om a reaeon£>blo expectation that ho convoy Dr. Funkhousor's reaar>u3 to 
Bite geologist Henry and visiting Boston Stone & Webster consultants.) 

Febru.ary ZZ>^26, 1970....BrlediQ returns to Korth Anna to thoroughly map Unit 1. 

February 2.5, 1970 Swlgor arrives from Boston for "In-depth field Invest Igot ion" 

of tho nlido area; diocusood chlorite seam with Honry and 
Brledlo 'in great detail"; alV ccnsldcr. posnlbllity o^ fault ing but decide 
chlorite zone foaturo does "net represent fault problem ." 

See article in Washington Post, Sept. 12, 1975, p. 



February 27, 1970 Briedln takes 6 rock oa-Dplon frcm Unit 1 to tho Ylrfilnla 

DlviL'icn of Mineral .Heoourcos In Charlottonvlllo for rcinoral 
idontlflcat Jon nnd comments on the orifrln of tho roolof;lc !it,r\icturr-n . 

"...J.icsors. Coiiloy, Good, end Gathri(:ht orally advised Mr. John Briodio that 
tho ollclconaldca, catacl;ir.tB and chlorite in tho rock saiplea from the site 
presented to thoni for mineral identification nia;/ bo Indicat i ve of a" 

(per oworn staterr^ent of JaT.on L, Calver, Cotrmisalonor of Mineral Resourcoo 
and State Geologist of Vlrf;lnia, mrido on llarch 10, 1574, in response to 
Interrogatorief. of the IJorth /oina Knviron.'ncntal Coalition) 

March 3, 1970 Henry writes tho following: "At thlo location the failure has 

been controlled by, and io a o-.anifostat ion of, a blotltc rich 
layer which hao heen altered to ch3 or'tc and severely weathered. . .Cour.try rock 
Itrmodlatoly overly inf; tlio biotite bed appears to be somev/hat rr.ore siliceous than 
tho G-urroundlnj; bedrock and contains scrao dlsso.Tilnatcd sulphldcu. . .3edi-ock im- 
mediately under lylnc the biotite zone is a fresh coarse Grained granite pioias 
rioh In orthoclase. ..The effects of a coiit inuat Ion of similar conditions throu£^ 
Unit JiZ should to considered prior to excavation."' 

March 10, 1970 Bri'dis returns to TO:.^; Interview Record entitled "i:ineralo£y 

of faulted rocks v/hich had caused landslides ." 

March 11, 1970 Stone & V7ebster send VZPCO's Crutchflold 4 copies of internal 

letter on Rock Support and Reinforce.-nent measures necessary in 
North Anna Unit 1 " to aghlovp stabjlitv ." Typical statement from the 3-pr.CG 
letter: "Tho block of rock foi-med oy these cracks and tho chlorite soaTi is a 
threat to therrcnv.xt ion and should be removed." 

llarch 23, 1970 Dr. Funkhouner returns to North Anna Unit 1 excavation, bring- 

infj Dr. Bruce Goodwin, Chairman of the Geology Department at 
tho College of William and ilary, his colleasue Dr. Stephen Clement, and students 
Donald O'Donahue and Joseph Terrell (the latter ncv; employed by VZPCO). 

Dr. Gocdrin is confident that I'.r . TMrlp^iin's attr'ntlon was oallod to tho frjl t. 
" \"e cor-sidnrod It a Inrco scale I'-iult at thr'-t t i:''-' . . .Vy'e mentioned tho extrerte 
atiount of fracturing in the fault... V.'e mentioned that that is a beautiful ex- 
anjilo of a fault. ..We were, all sort of pointing at it and running up at it and 
grabbir^ samplea of it... I believe v/e expressed some concern as to whether this 
was a good thing to have in any kind of foundation." 

Dr. CleT.ont is positive that the fault v/as pointed out to Mr. . "I felt 
• that he didn't want to talk about it. 1 had a feollng that he kind of v/ished we 
v.'ould go away...l had a feeling th.t ho had a moderate knowledge of rock types... 
I boliovo Goodvdn, JJVnkhouoor and I apoko about things like, 'Doesn't the 
presence of that fault bother you in this project?' ... 1 think wo asked him a few 
questions about engineering practices, about perhaps his rock bolting or stopping 
the water ficv-' alonrthe fr.-.i] t . . .we assumed that geologists wore being consulted." 


KORTil A,M:A U>;1T Hi CimOIIOLOGY Paco 3 

Jiarch 20, 1970 (cont.)«»Dr. t\jn)chou£!er brlnca otructural froolocists to confirm foailt 

dlacnoBlo of "unusual tooloRic foaturo" he vlowod r'eb. 2a, '70. 

Dr. ?url:hou8er recallo asking '■''T. Eneleman If he realized that the feature waa 
a major fault. "i.'r, >>;cltniandld not nco:n to havo much toiov/lodco of ^colory 
oxoopt that he h^d r"r:rd of faults . ..v/e eanorly spoke of a fault In our ccn- 
vorsat icns . . .the on(;inoor vlajbly cringed every time we mentioned the rord... 
I asB-u-TJod that }io v.-ould Immediately report this to his super ioro and apparently 
he did." (The next ooveral paf;cs of Dr. Funkhouser'o deposition are deleted 
per hia request out of consideration of the current V2PC0 eT.ploiT.cnt of 
his fonr.or otudont, Terrell.) 

Donald O'Donohuo romcmtera Dr. Goodwin* saying to Encloman "That's a heautiful 
fault you have there" and Engleman's replying "'.Vhat fault?" as though ho were 
surprised to hoar fiDout it. Ho believes the fora-nan asked if there waa any 
danger the fault would move. . .O'Donohuo reT.embers the discussion between 
Go&d-.7in and Er.gleman because of the surprise in the man'o voice, 'it secnod 
ridiculous to O'Donohuo that he wouldn't havo kno'.vn of the fault, or pho-.^ld 
havo kr.ovm about it, since he was in charfro of ccnstruot ion . 

L'r. K n fTlerr.nn recalls a "noticeable movement in the earth, and they took this 
portion of the aide of the excavation off above tho chlorite seam. ..It waa 
perhaps done shortly bt ''ore I got there." 

(riAEC notes Mr. was on duty at the site from Deco.Tber, 1969 through 
September, 1970. Removal of material around the seam waa dono in 
February, 1970.) 

Regarding his ovm reactions, IMgleraan says "I don't know that had he mentioned 
that there was a fault there whether it would havo bothered me cno way or the 
other. I'm not a geologist and I'm still lir.zy on what a fault is inj'self." 
Engleman can't recall any discussions with Stone & Webster site geologist 
Henry, nor can ho rKCCTiber the purpose of tho Stone & "ebster Geologists' 
visit's from Boston. He does not rcmeT.bcr who from VEPCO was involved in the 
resolution of tho rock-slide problem, nor who from VSPCO approved tho geologists' 
visits from tho Virginia colleges. ..Ho saw nothing "of sienificanoe in the aiscussion. 

(NAEC note: In tho 35 double-spaced pages of Mr. Engloman's deposition to 
tho Atomic Energy Conaiission, there are at least 41 instaECOs 
of memory failure.) 

Mr. Englcman was "ln_ charge of tho excavation site." 

He reported to VEPCO'o J. B. Dlschingcr of tho Power Production Department. 
Dischlngcr required no "poriodio written reports" from Englcman on the billion- 
dollar Korth Anna project, and has signed a statement confirming that Englcman 
made no report "ooncornlng ox^ireasod concerns by anyono regarding a geologic 
fault at tho alto." V,'.«. Wills, Diuohlnger's superior, confirms the lack pg 
any rocorda on suspected faulting at the Xorth liana site. 

(VAEC notoi Incrodiblol} 



19jO_cjiTiC^yhOG'fo:ij:f7^:'?AJi?_>Jvc^^^^^ chaiu.ottesville, Virginia 22903 

RAiV;;;:>"i;;-T<ious cir£sTio::s f: hc:M?s ix j'ublic ■vi?n) /703) 

P.O. BOX 3951 (S,0'i)2ii2-iibl7 

(703) 032-3903 or (804)293-6039 

1. If VEPCO did loicw of faulting find failed to report it, what trust can be 
put in other YHPCO safety etatorncnts and actions? 

2e If ViPCO did not know of faulting — so readily apparent to independent 
Geologists — what trust can be put in VEPCO competence? 

3. In the linht of wall collapse and multiple problems at the Unit 1 
excavation site in 1970, how could VZVCO have failed to knov/ that 
faulting was under consideration in connection v;ith the chlorite scaii? 

4. Hovr could VEPCO's Resident aigineer have been oblivious to the iT.pli- 
cationa of the rock-slide and the sudden ruoh of visiting consultants? 

5. Is it possible that VK?CO»s Resident Engineer — v/ith 24 yesrs' experience- 
could be ignorant of the tenn fault , a term fa-niliar to most laymen? 

C. Is it believable in terms of sound business practice that TOPCO v.^ould 
launch a bill icr.-dollar nuclear construction project in Louisa and not 
havo a v/ritton report system with its representative at the site? 

7. Who in the VSPCO hierarchy gave permission to proceed with the project 
after VEPCO learned of the stability problems arising from the chlorite 


8. V/as there consultation with the ASC'a North Ajina Project Manager? 

9. WTiat was the extent of the .iSC's knowledge and reaponsiblity at the site 
in 1970? 

10. V/hy has the AEC's investigation of 1970 conditions surrounding site 
knowledge been so grudging and slov/? 

11. Why has the-.^EO put out a shoddy pioco of invest igat^ive work that 
makes no attempt to derive conclusions from evidence? 

12. V.Tiore can the public look for protection il" the AEC Regulatory Staff 
assists utility deception? 

.13.- Can the public look to the Advisory Coramitteo on Reactor Safeguards? 

KE3RU/UiY-MAliCH, 1970) 


For release on April 11, 1974 

P.O. BOX 3951 (8O'))202-8ei7 


rAEC CAL lj A7:0 U-V?:r.7I0ATI0?: PJCPOPT "FHAUgUL;xr (,03, 332-3903 or (UO'I) 293-6039 

At a meotlnc today of the Advloory Conmittoe on Roaotor Safeijaards, the Korth 

la Environmental Coalition charged the AEC with publishing a fraudulent roporto 

Vho 2-paragraph "Sunmary of Faoto" in the CoT.-niao ion's Invest if^at ion Report ll.T,.) j/ij-/?^ 

alleeedly clears VEPCO/charges that tho utility toow or Ruanceteil fault Ini? at the 

ITorth Anna Nuclear Power Station site in 1970 — 3 years before YEPCO reported tho 

geologic anomaly to the AEG. \ 

Such a conclusion is spurious, says a Coalition spokesman. Kot only is it un- 
supported by the body of tho report; it is given the lie by depositions collected by 
the ABC's OToi investigators. V/illia-n P. Swlgcr, consulting engineer for VEPCO'o con- 
structor, told ABO that faulting under tho Korth Anna dam was reported to VEPCO as 
early as 1969. That was full,-* a year before the visit by acadeaio geologists v/hose 
. ^ult diagnosis had prompted the original Coalition cheurgea. 

The 3 Virginia professors of geology also gave depositions to the AIXJ stating that 
in Uarch of 1970 they had clearly and dramatically identified the faulting in the 
Unit 1 excavation to VEPCO's Resident Engineer, Mr. H. L. Engleman. Ur. Engleman \vas 
"in charge" of the North Anna site and responsible for liaison with VEPCO's Richnond 
headquarters o 

Virginia's State Geologist has signed a sworn statement ihat a geologist representing 

VEPCO's constructor was alerted to possible faulting by three staff lEOnibers of the 

Virginia Division of JJinoral Rosouroos on February 27, 1970. 


"Not only is the report a fraud — it's a _9lo)2Ey fraud," cotTTOonted ono 
v,oalition mo:abt>r, "coxpilcd in a picco-.-noal fashion." The invest ion was supposedly 
begun by the AICC in Aui^ist of 1973 when tho NAIOC first made its charges. "If you road 
it carefully, you will see that 14 of the 23 pooi)lo quoted were hastily reached in lato 
January ajid Kc'truary of 1974, after the Coalition complained about half-hoartod invosti- 
(*ation efforts and blatant omission of tho Virginia Ulvioion of Mineral Kcsourcos. 
Its absolution of \yA'CQ in unrelated to reality." (Soo attached NAEC CRITIQUE OF 


NAEC Critique of AEC Investigation: Evidence vs. Conclusions 

Tho CAPITAi-IZSD STA??r.'o".NTS bolow aro taken directly frcx "Su-imary of Facta," 
pago 2 of tho jT;7rit!i"\t-. Inn Dppnrt of tho Diroctorato of Rof^il.itory Oporat lona (A2C) 
on tho T.atter of VZr'CO'a oarly knowlooi^o of faulting; or BUDpcctcd faulting at tho 
North Anna. Pov,-er Station. ?ho invootli-;.ition wao mido in roriponoo to char(;o3 by 
tho Korth Anna Knvironjncntal Coalition that VrTPCO toiow of faulting at tho sito 

least 03 oarly as 1970 but did not i-oport it to tho Atomic Enorcy Comniosion 
until May of 1973. , 

Indented beneath tho CA?1?ALI2EI» C?ATE,ra<TS nro quotntionn from othor parts of 
thj.t Bssio Invest! rat ion Rcnort. dcpoaitlona made to AEG counsel in its prepiirat ion, 
or report a~JocTttea to tho Aib at an earlier d.ato. The Korth Anna Envlroraontal 
Coalition believes that indented etatexcnta and quotations support K/iEC'a clalra that 
/•'n'n "f:'j".T-^'-y of Facts" la not punrortod by . Rather, in it tho AEC presents 
tinsupportcd aimrioua conciuaiona wnich aro neither e^rplainod nor substantiated. 


OK a:? ex;'.l:i!;a?idx of au. ?EHTi:r2'r: records, has fouio) ko factu/J, evidekcs tfji.? notice 


"Dr. Gooav.'in (Chairnian of. Geology Department at College of V/illleai & i'ary) 
Bald to tho construction man (VEPGO'o Resident Engineer H. L. Engleman) some- 
thing about 'That's a beautiful fault you have there.' The reason O'Donohue 
roT^crabers this is because this foreman said, 'V/hat fault?' as though ho were 
surprised to hear about it." I«K. p.23 

"They wore met by tho official (\'E?CO'e Englcnan) and they tainted to him about 
• tho fault... Clement (Stephen C, Geology Professor at College of V.'illica & 
I'ary) is sure they spoke about the fault and pointed it out and asked him if 
ho weren't worried about it. ..He believes Goodv/in, Funkhousor, and ho spoke 
about things like 'Doesn't the presence of that fault bother you in thla 
project?' .. .He is positive that the fault was pointed out to the official." 

I.R. p. 8 

"They (Doctors Goodwin, Clement, Funkhouser) all readily agreed after an ex- 
amination of the rock that there was a fault... they definitely pointed out to 
Kngleman tho fault which they hud all agreed on.. .Engleman was almost incredu- 
lous, yet he was hearing it frcm all threo.." I.R. p.7 

APRIL, 1973. 

"On ."obruary 27, 1970, l-'cssra. Conlcy, Good f\rd Gathrlght (geologists for 
•tho Virginia Division of I'.ineral Resources) orally advised ilr. John Brlodio 
(geologist for Stono & V.'obster, VEPCO'a constructor) that tho p1 Ickrnr. iciea 
presented to thorn for mineral idontlf IcutSon mn.y bo InJlcp.tlve of a f.-'-.iJt." 

— 3/10/74 Gv/ora statcmsnt of Stnto Geologist 

Willlnm P. Swigor, Stono & •ffcbstor consulting ongineor "observod a chlorite ceam. 
no rocallod that thoy gave consideration to tho ro.tnlblo interpretation of th1i 
fo-itxirfl an a fault (ho and Henry)." l-H. p. 14 


Critique of Invostieation Roport. 

Pace 2 

WSi ""horc is (I omall fr.u It on the mapping on the north oido of the river which 

is under the dam..," 

"A amall fault v/hich I ouppose you would classify as a c:c.olop;ic nr.omnly . 

is that correct?" 
J/S: "Yes." 

"Waa the fault reported to VKPCO, to your knowledge?" 
V7S: "It'B identiflod on the Geologic .-r.ap." -.S^viKer deposition; p.32,34 

(KASC Koto: Said geologic rr.ap is in a Stone t 'Vcbnter report dated Fotraary 6, 1969 . 
Per Shovr Ctuso Kearinc testimony, /Jii'o first >mov7ledf,'e of faulting 
under the Xorth Anna daa was tnc above quoted Sslgor deposition io/3l/75. 
It has since been learned that there are at least 12^ fp.'jlts under the dsj , 
2 going toward the reactors, none reported until lyvs.) 
"Did you consider at that*tinie the possibility that this might be a fault?" 
J2J, "..John Bricdis and Bill Swiger — all gave it consideration. . .locking at the 
chlrrjto ncv n, it's one of the first things that pjybcr-,' rould consider S3 n ..." __R. J. Henry deposition, p. 19 

"Did you inform anyone else you were cona^dcrlrg faultlnfr ?" 
JBs "Probably ),'cKittricX." ' --John Briedis deposition, p. 42 


"The cite area is extensively Jointed. . .cross Joint set io often foiuad 
neai' contacts between two rock types... tv/o sots of diagonal Joints in 
direction of majcimua shear. . . si Ickonslld ed in places..." 

--Daines & lloore ?>.v. Studies l/l3/69, I.R. Ex. A 

"Potentially unfavorablo rock arA Joint conditions have boon observed 
and could influence excavation stability..." 

— Danes & Uooro Fdn. Stud Irs 5/8/69, I.R. Ex. A 

"Jpint sets... are cliay or chlorite filled, smooth, and show move:se nt 
up to one and one-half foet...lIost shear rr.ovpTirint in hornblende gneiss, in- 
dicating hornblende gneiss less coi.potent than granite gneiss..." 

— Damea i lloore Knv. f^tndjps S/lS/Vl, I.R. Ex.A 

(IvAEC Koto: Vccording to D&ll's Joseph Fischer, movoTOnt doflneo a fault.) 

"A nuir.bor of sniall shears have been encountered in borings taken at the 
proposed sites of dikes, canals, juid the main diim. Those fn-.ilts have in- 
variably boon partially or totally hoalod. . .Because of tho minor nature of 
the faulting observed in tho borings, it is interpreted to represent the 
normal sj.all-scalo tearing which typically occurs in aroaa of folded rocks... 
mineralisation has been restricted to activity along tho very old, healed faults ." 
—Stone & Webster's Goologic Report — Da-na, Dikes. Cnnils 



Geologic Report of the North Anna Nuclear Power Station, Virginia 
By Paul J. Roper, Department of Geology, Lafayette College, Easton, Pa. 

Reactor sites 3 and 4 were visited on May 22, 1973. The sites were in a fine- 
to medium-grained moderately foliated felsic gneiss. The foliation was dipping 
approximately 40° to the northeast. I was presented with the impression that 
others considered these rocks as metasediments, and the moderately dipping 
foliation to the north was interpreted as representing the limb of an antiform ; 
the hinge of which was farther to the south. 

My impression of these rocks and their structural relationships is quite dif- 
ferent from those opinions previously mentioned. I would like to propose two 
things: 1) that the rock is metaigneous rather than metasedimentary, 2) that 
structurally these rocks are an igneous intrusion and have not been folded 
into an antiform as suggested. 

Several lines of evidence suggest that these rocks are metaigneous rather 
than metasedimentary. First, the rock type is suggestive of igneous origin. 
Compositionally, from hand sample identification, it appears to be composed 
primarily of quartz, plagioclase and microcline. Practically no dark or hydrous 
minerals were found in this rock at all. I did observe small patches of biotite 
on an early foliation surface, but in terms of modal percent it must be a minor 
constituent. Texturally, the rock was holocrystalline and medium-to fine- 
grained. Compositionally, this would have to be a very unusual metasediment- 
ary rock. The only metasediment with this type of composition would be in 
the granulite facies of regional metamorphism. I know of no metasediments 
of his high metamorphic facies found anywhere in this part of the Piedmont. 
Furthermore, granulite rocks are usually much more intensely foliated than 
these rocks. Secondly, this rock is unusually homogeneous. Most metasedi- 
ments show a much more distinct compositional layering of quartzo feldspath- 
ic and schistose units. Finally, there were no distinct signs of sheared-out or 
refolded foliations typical of most of the metasediments found in the Appa- 

Assuming that this interpretation is correct, then I would also suggest that 
the grain size would increase slightly to the south in the center of the pluton. 
The medium- to fine-grained texture at this location is probably due, at least 
in part, to chilling near the wall rock. I propose that the primary northeaster- 
ly foliation S, is due to drag and shear along the wall rock as the pluton 
intruded this region, and is not related to folding. Most metasediments in the 
Piedmont are believed to be at least lower Paleozoic in age. They have also 
been multiply deformed and abundant minor structures usually indicate this 
relationship. However, there is a notable absence of refolded minor structures 
in these rocks, which is very atypical of metasediments. Furthermore, the S, 
foliation is totally anomalous with F, folding found anywhere in the Piedmont 
except for the slate belt, and compositionally these rocks are very different. F, 
folding in most of the Piedmont is isoclinal and often recumbent. This was 
not the with the postulated fold in this area which appeared to be 
open flexural-slip. Total lack of refolded foliations would classify that fold 
as an F, old. A later crosscutting foliation was observed in sites 3 and 4. 
I am not sure about the origin of this foliation at this time. It might be a 
fracture cleavage due to gentle warping or folding of the pluton, or related 
to some type of cooling phenomena or drag due to faulting. fractures 
filled with quartz and/or pegmatite also occurred after S,, but their exact 
significance was not determined during this reconnais.sance. A regional field 
study would be necessary to determine its origin and significance. 

Conclusions — The composition and lack of zenoliths suggest that this pluton 
crystallized at relatively high temperatures at an intermediate depth below 
the surface. I suspect that it is a hypersolvus granite. Additional field and 
perographic studies should be able to verify this interpretation. 

Post dating all foliations is a fault system that traverses across sites 3 and 
4, and trends toward reactors 1 and 2. The existence of this fault cannot be 
denied ! It is clearly indicated along the walls of pits 3 and 4. A schematic 
drawing of the fault in the west wall of reactor site 3 is illustrated in figure 1. 

The main fault consists of a gouge zone varying from 1-10 inches thick 
with numerous slickensides. The gouge zone surrounds elongate lithoclasts 
of felsic granite and sheared-out quartz veins up to four feet in length. Adja- 


cent to the gouge zone is intensely cataclasticized granite and truncated quartz 
veins, and quartz-filled gash fractures. Both the veins and gash fractures 
■usually have a fracture cleavage associated with them. The fault plane dipped 
moderately to the northeast approximating, but cutting across the dip of S, 
foliation. The floor of reactor site 3 showed a very prominent subhorizontal 
grooved or striated lineation in the catacla.stic rocks associated with the fault. 
I have tentatively interpreted this lineation as representing the direction of 
movement along the fault. The relationship of these lineations to the fault 
plane is best exposed behind reactor 3 above the pit. If this interpretation is 
correct then there is a substantial strike-slip component associated with the 
net-slip of this fault. However, the low angle of dip (approximately 45-50° ) 
of the fault makes it very unlikely that it could be a strike-slip fault. Normal- 
slip displacement of approximately 1/2 inch was observed within ten feet of the 
main shear zone, but this offset probably only records the last movement along 
the fault, which probably does not characterize the true movement along 
this structure. 

As indicated in Figure 1, both the hanging wall and the foot wall of the 
fault zone are clearly exposed. The hanging wall has several additional sub- 
parallel shear zones of lesser intensity ^han the main fault zone. In general, 
these zones appear to decrease in intensity to the north as the distance from 
the main fault is increased. These subparallel shears appear to be gently 
curved and are suggestive of splays that bifurcate off the end of a fault. 
Crosscutting the trend of the fault system, in the hanging wall, are a few 
southwest dipping second order fractures. These intersecting shear surfaces 
have resulted in the hanging wall being more intensively fractured than the 
foot wall. The fracturing along the northern tip of the hanging wall and 
foot wall adjacent to the fault has exposed the granite to deeper and more 
intensive chemical weathering (saprolitization) than in adjacent areas (Fig. 
2). This region will also be the site of intense chemical weathering in the 
future and may result in an unstable base under the reactors. Unless this prob- 
lem is dealt with it could be a source of constant trouble in future years. An 
older surface was also observed in the foot wall of reactor site 3, but it was 
not nearly as prominent or as intense as the main fault zone. 

T^vo possible suggestions for improving the stability of this site are offered 
in this report. 

1. The reactor sites are located directly over the fault. Therefore, if the 
reactor pits are deepened they will penetrate the upper lip of the hanging 
wall and would rest on the foot wall, which probably would provide a more 
stable foundation. (Fig. 3) Deepening of these pits would also be below the 
incipient saprolite zone and therefore would be more resistant to chemical 

2. Moving the reactor sites to the south would have the same effect as 
deepening the pits. (Fig. 4) 

These suggestions are based upon the assumption that no additional faults 
are present in the subsurface to the south of the present sites. The last sugges- 
tion may have an added advantage if these rocks are a granite pluton as post- 
ulated in this report. If this is the case, then by moving the sites to the south, 
one would in effect be approaching the central mass of the pluton, which should 
be less faulted and more stable. 

Dating the timing of the last movement along the fault may be important 
in order to determine the potential earthquake hazard of this area. Although 
an exact dating of the last movement is practically impossible with present 
technology (especially if movement has occurred in the last few tens of thou- 
sands of years), it nevertheless may be possible to estimate approximately 
when this movement occurred. This could be done by locating a site where 
slumping saprolite due to creep truncates the fault. The most ideal location 
for obtaining such a relationship would be along the side of a hill which is 
known to have a thick layer of saprolite which is inten.selv weathered, pref- 
erably to the G horizon of a soil. Such a material is unstable and subject to 
creep down hill under the influence of gravity. Soil analysis can be made to 
determine the shear strength of the soil, in this case mobilized saprolite. which 
can then be eouated to the slone of the hill and influence of gravitv in order 
to determine the approximate length of time that the saprolite took to move 
a certain distance down hill. T rather doubt that this method would be effective 
for more than a few hundreds or thousands of years. Ideally this relationship 


should be obtained on the fault in question. However, if this is not possible 
then other faults, especially major faults in the immediate area could pro- 
vide suggestive evidence that would probably be related to this particular 
fault. Although saprolite is abundant in this area, it is not as intensely weath- 
ered as it is farther to the south. Therefore, this method may not be as easily 
utilized in Virginia as it would be in the Carolinas or Georgia. 

No detailed geologic mapping has been done in the vicinity of the North 
Anna Nuclear Power Station. However, Neuschel (1970) has made a detailed 
aeromagnetic and aeroradioactivity survey over 1050 sq. mi. of the Spotsyl- 
vania area in Virginia, which includes the Contrary Creek quadrangle in which 
this nuclear power station is located. Mafic rocks often contain significant 
amounts of ferromagnetic minerals, and are clearly delineated by this type 
of survey. Felsic rocks, on the other hand, such as granite, especially those 
that have crystallized by the typical Bowen trend associated with relatively 
high oxgen pressures, are usually deficient in iron-rich minerals. Therefore 
they would not be clearly outlined by a magnetic studv. However, such felsic 
rocks do concentrate radioactive minerals which can be picked up by an 
aeroradioactive survey. Such a technique is useful in delineating map patterns 
of granite plutons. By combining the techniques, supplemented by a field 
check of rock types, Neuschel (1970) prepared a lithologic map of this region 
which IS useful in interpreting the local geology, as well as the possible tec- 
tonic significance of this area. 

Earlier in this report, I presented field evidence suggesting that the rock 
underlying the nuclear power site were igneous or metaigneous rather than 
metasedimentary. Neuschel (1970, Fig. 4) arrived at the same conclusion from 
^\l^rZ .^''^'"'^ •^"'^'''•'' """^ ^^^^ ""^^^^ of lithologies. However, Neuschel's 
(lyru, ±ig 4) is a lithologic and not a geologic map. Nevertheless, his map 
coupled with my visit to the nuclear power site can enhance further geologic 
interpretation of the area. sfuiugn. 

Neuschel (1970, Fig. 4) shows an elongate northeast trending bodv across 
the southeastern corner of the Contrary Creek quadrangle, extending "into the 
northwestern portion of the Partlow quadrangle, and the northeastern part 
of the Buckner quadrangle (Fig. 5 of this text). The nuclear power station is 
located approximately on the western side of this body about midway along 
its lengt^i on the south side of the North Anna River. It should be noted that 
the western side of this pluton is abnormally straight suggesting that it is 
in fault contact with the adjacent hornblende gneiss. The southeastern margin 
of the stock IS also unnaturally straight, suggesting a fault contact in that 
region as well. I believe that the western border of this pluton represents the 
taultthat^ underlies the four nuclear reactors. If this interpretation is correct 
then the fault is about SVo miles long and extends under the reservoir How- 
ever, Neuschel's aeroradioactivity map (1970, Fig. 3) shows a sharp flexure in 
the sout^h western end of the stock, suggesting that the fault is only about 
2 miles long^ The flexure is near the location of the power station and might 
explain the bifurcating or splaying nature of the fault in that area. Nevertle- 
1-^^' t^^//iult would still extend beneath the reservoir. The elongate configura- 
tion of the pluton. and its bent northeastern terminus suggests that it was 
intruded parallel to the regional strucure. 


Figure 1 Cross section of west wall of reactor site J. 
Plane of section is carved. Stippled area is 
zone of incipient saprolitization at deeper level, 

Hanging walJ 


Map view of reactor sites I--- shewing trend of fault 
zone. Etippled area outlines approximate zone of 
incipient saprolitization. 


wa.ll ^ 


Figure 3 Deepening pit would result in base of reactor 
lying on the footwall of the fault which would 
probably be less fractured. 

/itf /<!!•<»-// 


Figure ^ Moving reactor sites tc the south would have 
the same effect as deepening the pits 



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V * • '^ ' "^tf ^;^ -^V^^vv:;} s?;^^^^;iv^J^ |i 



References Cited 

Neuschel, S. K., 1970, Correlaion of aeromagnetics and aeroradioactivity with 
lithology in Spotsylvania area, Virginia : Geol. Soc. America Bull., v. 81, no 
12, p. 3575-3582. ' 


June 3, 1975 

Professor V/illiam Rodgera 
Geoj':2etown University Law Center 
600 i'ie'.v Jersey Avenue N.W. 
Washington, D. C. 20001 

Dear Professor Rodgers: 

Docauoo some of my vlov;3 were not clearlv broup;ht out In the 

adminir.trative tribunal hearing on May 28, 19V3 , It Is my undor- 
ctandins that you would like ne to elaborate In more detail about 
my fef.iings concerning a suitable study plan that v?ould enhance 
tlie safety of the Horth Anna nuclear pov/er plant. Before I do 
this, I think that it v;ould be worthv;hlle to enumerate a few 
rear^ons i^hy the ilorth Anna plant should merit special consideration 
for additional study. These are as \f ollovfs : 

1. The- North Anna plant is one of the largest nuclear power plants 
In the country. 

2. It is located approximately 50-70 miles from the nation's capital. 

3. A fault that "las experienced complete loss of cohesion lies 
stratcb'lcally beieath all four reactors of this plant. For simpli- 
city, I will ref r to this fault as the North Anna fault in this 


h. A zone known as Neuschol's lineament or the Fredericksburg 
fault (Higgins et al. , 1973) Is a much larger structure, conceivably 
up to 200-300 miles lon^, vrhich lies Junt a fev? miles to the east of 
the plant. Some controversy still exists as to v.-hether or not this 
zone is a fault. Hov/ever, Hlgglns ' testimony oayn that it is a 
fault in the Frcdericksburs area of Virginia. 

5. Onci of the most intense and active earthquake belts In the eastern 
United States trends in an E-V7 direction across the structural f-rain 
of the Appalachian mountain system. Althou;:;h there is some contro- ■ 
versy as to the 'i:eolos!;ic sifjnlf icance of thir, belt, it does lie to 
the east, and parallels the trend, of the 3oth parallel fracture 
zone, ^/hlch is known to exist In the midwe.otern part of the country. 
It io feasible that this earthquake belt could be an eastern exten- 
sion of the 33th parallel fracture zone. If this correlation is 
correct, the 3Sth parallel fracture zone could be up to 600 miles 
Ions; thus, one of the largest fault zones In the United States. 


Professor Rodgers -2- June 3, 1975 

6. Although earthquakes In the eastern United States are not as 
frequent and generally not as lar^e as those in the v^estern part 
of the country, they are knovm to affect much lartjer areas of 
land in the eastern United States than in the v/estern part of 
the country. Bollinser and Kopper (1971) indicate that eastern 
earthquakes of comparable magnitude affect an area of about ten 
times "larger than those in the western United States. Thus, it 
is conceivable that earthquakes along the postulated 3Sth parallel 
fracture zone could cause significant damage to at least the 
foundations of the North Anna reactors that overlie the North Anna 
fault, because the 38th parallel earthquake belt is just a few 
miles to the soutli of the Jiorth Anna plant. Although I am not 
familiar v;ith the details of hov; the reactors are designed, I have 
been informed by Dames and Moore that the reactors are built to 
vrithstand a considerable decree of vibratory motion from an earth- 
quake. However, it is practically impossible to design any founda- 
tion that could not be disrupted by shear if the North Anna fault 
were reactivated by an earthquake. 

The general relationship between these three faults 1) the 
North Anna fault, 2) Neuschel's lineament or the Fredericksburg 
fault, 3) the 33th parallel fracture v?ere made knov,-n to Dames and 
Moore by me during the summer of 1973 in a couple of consulting 
reports. In all fairness to Darnes and Moore it should be pointed 
out that there was little or perhaps no possibility th?.t they '.■.•ere 
or could have been aware of the potential large scale fault zones 
that e.xlsted in this area before construction began on the North 
Anna plant. After these relationships v.-ere pointed out to them, 
Da;nes and Moore did make a reconnaissance geological sui'vcy around 
the site. At the time of this writing I have not had the opportunity 
to read this report, although Dames and Moore have verbally agreed 
to send me a copy of the report in the near future. However, I have 
read testimonies by Dames and Moore and by members of the U.S.G.S. 
concerning this report. Because of my ovm experience in v;orklng in 
the Appalachian Piedmont, I am well aware of the difficulties and 
time Involved in producing a geologic map in this complex area. 
From my limited knowledge of the work done by Dames and J-'oore ?.nd 
from reading testimonies on this mapping program, I have no reason 
not to believe that Dames and Moore made a sincere attempt to produce 
a geologi map of the area around the plant in the time allowed, and 
within the technical capabilities of their personnel. It is my 
understanding that Dames and Moore have even referred to this work 
as a reconnaissance study and do not claim that they can provide 
definitive answers to the regional problems that could affect this 
area. In fact I do not believe that it is within the ability of 
any private company, with regards to the amount of time and manpower 
that would be required, to adequately study these problems and 
provide reasonable solutions to the potential tectonic hazards that 
could influence this area. 



Professor Rodgers ■ -3- June 3, 1975 

Next I would like to direct attention to the magnitude of 
the problem, why I think this area can be studied In (greater detail 
at this time, hov; such a study should be approached, and the type 
of ansv/ers that night be expected from such a study. It Is Impor- 
tant to note that this entire araa of Vlrpjlnla has never been 
studied except for a very crude reconnalsaance survey that had been 
made In preparinr^ the 1928 geologic map of Virginia. This map is 
extremely over-simplified and very much out of date. Geologlr^ts 
have avoided studying this area because the geology Is very complex, 
intense weathering of rocks, thick vegetation cover and lack of 
significant relief to provide a reasonable amount of outcrop control. 
However, several important developments have been made since the 
1920*3 which now make it much more likely that this region could be 
successfully studied in greater detail. First, much more Is known 
about Appalachian geology. Second, new concepts in global tectonics 
have provided us with a better understanding of how uhe Appalachian 
system evolved through time, allovjing us to develop much more 
realistic models of regional structures. Third, m.uch has 
been made in recent years concerning fabric analysis, strain fades, 
poly-deformation and metamorphism, which are critical aspects to 
any study anywhere in the Piedmont, Finally, Neuschel (1970) 
published an aeromagnetic and aeroradloactivity survey of much of 
this region which would serve as an invaluable guide to field 
geologists mapping in this area with the restrictions with which 
they would have to cope. These advances suggest that this area of 
Virginia is nov/ in an ideal state for much more detailed mapoing, 
and the potential environjTiental hazards of the area make such 
geologic mapping almost mandatory. One point that I should like to 
emphasize is that the geologists who become Involved in maopinr- 
this area should be experienced in mapping techniques In the southern 
Appalachians. This is important because mapping in this part of th.e 
country is very different and much moi'e difficult than anywhere else 
In the United States. Experienced personnel v/ould be able to produce^ 
more accurate maps in a shorter period of time. 

In order to approach this problem adequately, it will be neces- 
sary to do extensive regional geologic mapping. This would be 
accomplished by mapping 7h minute quadrangles at a scale of l:2'l,000. 
I would propose that mapping begin with the Contrary Creek quadrnngle 
w)iere the North Anna plant is located. Additional quadrangles that 
would include Neuschel 's lineament as well as quadrangles on either 
side of this structure. would also be mapped. The trend of mapplns; 
would parallel Neuschel 's llneair.ont and proceed to the southwest 
where this lineament intersects the 33th parallel fracture zone 
(i.e. the E-W trending earthquake belt). E^'-tensive mapping would 
be necessary within and along the 38th parallel fracture zone because 
this zone is very wide. The extent of mapping on either side of the 
38th parallel fracture cannot be estimated at this time, and can only 
be assessed as more information is obtained about its significance. 
Because the nature of Neuschel 's lineament and the 38th parallel 
earthquake belt are not known, it la not possible to estimate the 
number of TH minute quadrangles that would have to be mapped in order 
to provide satisfactory answers to "these problems. 


Profoasoi' Rodgers -'4- June 3, 1975 

Another point that should be clearly outlined at this time 
Is th2 amount of time and effort that would be required to study 
this area. As a rough estimate, an experienced peoloKist workini-:; 
full time on a 7>i minute quadrangle would require at least one vear 
to ooriplcte such a study. This aspumts that no unusually difficult 
problems arise in the course of the investir:atlon. I personally 
kno".; of some very skilled i-eolOf,ists that have worked as long as 
oi^ht years on some quadransles, and still had not completed them. 
Furthermore, any attempt to study a completely new area that is as 
cocplex as this area will require at least several years of study 
before any alGniflcant progress can be expected in understandir.s 
the ideology. 

I would like to e-nphaslse several points from the preceding 
disv^.usolon on the mapping proitran. First, if any reasonably 
useful answers arc {■join,-; to be derived from such an investigation, 
it l3 imperative that an all-out effort be made to conduct this 
prosram. Any half-heartt~<d attempt would be a waste of time and 
money. Secondly, I think that it is obvious that such an Inves- 
ti-atlon is a Ions term program that could easily last at least 
ten-fifteen years even v?ith a si£;nificant number of ,^eolo--ists 
worklHi-; on it. Therefore, in order to be of maximum usefulness 
to the safety of the North Anna plant this pro?;ram should have 
been started at least several years ago. This obviously has not 
been done, so I would urge that such a program be initiated as 
soon as possible t 

In addition to the regional mapping proRi'an sujrjicstcd above 
there sliould also be a lone term noophyslcal investlr.atlon that 
should accompany this study. These should be of two typos. ?lrst, 
some type of earthquake monitoring equipment should he installed 
eltlier near the plant or In some way be associated with the 33th 
parallel fracture zone. At least two or more types of equipment 
should be used for maximum effectiveness. One type of study should 
be ooismic, especially with regards to recording and analyzin?: 
VpA's waves from raicroearthquakes. Although I am not aware of the 
details that have been made aloni; these lines, I have been informed 
by Dav.e3 and Xoore that some sophisticated seismic equipment has 
been installed at the Nort.h Anna site. Other types of geophysical 
studies such aa tilt meter recordlnss, radon quantities in v/ator, 
water levels in wells, magnetics, etc. could also be employed in 
obtalnlnc premonitory sijtnals of potential earthquakes. The nature 
cf these studies and typo of equipment should be determined by a 
geophysicist, and some need in modification for such studies ir.av 
chai .^e as more is learned about the geolo.cjy of the area. Geophy- 
sical studies should also be employed with the mapplnj; program in 
order to determine in greater detail certain parameters of deep- 
seated structures that cannot be adequately evaluated from surface 
mapping alone. 

The methods proposed in this report are the best techniques 
that the geolosical sciences can offer at our present state of 
tcohnolociical development. That does not mean that absolute answers 
can be obtained for all of the questions that abound in this area. 


Professor Rodgers -5- June 3, 1075 

However, it is certain that without these atudlea very little 
could ever be accomplished In evaluating the real neoiop;lc hazards - 
that we know exist in this area. Pro.n a i'.colopical point of view, 
In order to Insure the maximum safety precautions of the North Anna 
nuclear power plant and the people that live in the surrounding 
area, I believe that at least these measures should be taken. 

The proposed geologic studies in this report would first of 
all provide us with the basic structural pattern and types of 
rooks in the area. Such a prof^ram ■\fould also r^oviae us with a 
ii.uc.i better understanding of what Neusoiiel's lineament and the 
3oth parallel earthquake belt arc from both a structural and 
re;;ional point of view. This type of information Is critical In 
attomptlnis to interpret the p;colof;lc and environmental hazards of 
fco-.;h re.cjional structures with regards to the Nortn Anna plant. 
i-;..uely and Devine (197^1) point out that earthqualcos in the eastern 
unik^od Staues ^;eneraily cannot bo related to definite c;eolov;ical 
structures and therefore we have no way of Interpret in-:; why earth- 
quake belts occur in this part of the country as they do. Tho 
pror:ram proposed in this report would be the firr.t serious attempt 
ti. r.oive these problems and could be of nreat value to other parts 
of tho Appalachians with similar types of earthquake belts, ouch 
.?s Charleston, S. C. and the Doston area in Massachusetts. Hadcly 
und Devine (137'0 also indicate that most earthquakes in the eastern 
Urdted States are relatively shallow (less than 7 irm) which supi.-^ests 
t;-iat these critical 7-ones could bo readied by drilling. Eventually, 
aoMo time in tlie future when these zones are better understood, it 
mtKlit be possible to control the earthquake activity in these zones 
by i'luid injections. 

Tho next problem that I would like to discuss deals with tho 
types of ardencies or institutions that would be most capable of 
accompllshins the typo of pro^.ram outlined in this report. There 
ar-j three types of Institutions that are capable of conducting, 
Euc.i a projirajii. They are: 1) the U.S.G.3., 2) the Vir?;lnla Geol- 
OG;ioal Survey, 3) a large department of geolor.y that grants a Ph.D. 
d^-j^ree in one of the major Virsinla universities. 

The U.3.G.S. and Virginia Geoloi-!;;lcal Survey both have the man 
po'./ci', experienced personnel and equipment to undertake a prop;ram 
of this magnitude. However, both of these a.^encics are, and have 
be'Ni, corar;iltted to other lont];-term projects, and it is rather 
ujilikely that either one could initiate a new prof^ram of this 
nia,';nitude in this re,<5ion without considerable expense. 

I believe that the third suR,^ostion, that of one of Virginia's 
State Universities, is probably the best for several reasons. First, 
muca of the experienced man power and technical equipment Is either 
already available, or else any doficiencies that mlpht exist could 
bo added to such departments in such a way that these ,r;roup3 could 
du.)ip;n the selection of their staff and equipment specifically to 
tnio and related problems. The faculty of such a department could 


Professor Rodgers -6- June 3, 19713 

act as valuable consultants to engineei-in!? firms, po-.ver conpanica 
and the Atomic Energy Commission for similar types of problcrnc 
related to nuclear pov/er plants all over the world. Third, much 
of the mapping involved v/lth this problem would be accomplished by 
graduate students ct considerably lower salaries than fully 
employed professionals in state and federal surveys. Flrially, 
the university involved in this project v;ould provide both ln'Ju':try 
and covernment surveys v/ith an important source of highly-tralrr-.d 
field and environmentally-oriented geologists, which is somethlns 
that they both desperately need I 

At the present time there is only one state university In the, 
southeastern Unit-jd States that hac conducted large scale mapoin- 
programs at the .-graduate level. Tnat university is the University 
of North Carolina at Chapel Hill. However, their m?.opinc, programs 
are academically orienT^ed and do not pertain to envirorur.ental 
problems except by accident. The universities in Virginia no 
such program. Thus, it would be advantacreouo , n.^ juot to Virginia 
and the North Anna problem, but to the entire si- ithcaatorn United 
States to develop such a field-oriented onvironn. 'ntal geological 
program v/here come of the professors would actually conduct field 
studies along with their graduate students. 

There are two universities in Virginia that I would recommend 
for such a program. They are Virginia Polytechnic University and 
the University of Virginia. Each university ))aii certain advantri-es 
and disadvantages which I will attempt to evaluate. V.P.I, ha.-? the 
advantage of having a well-developed and diversified department 
which is very well equipped. It also has graduate students of high 
quality who are capable of producing sophisticated theses and dis- 
sertations. V.P.I, also has a very well equipped dsnartmsnt \;ith 
regards to instruments needed In this kind of research. Thoir 
academic staff is excellent. 

However, there are some significant disadvantages with V.P.I. 
First, they are not located very near to the North Anna re?7:ion 
which would place some restrictions on the ease of acoessiblllty 
to the problem area. Secondly, much of the staff at V.P.I. is 
very specialized and most of them are not involved with field 
studies or v/ork on environmental problems. The few faculty manbers 
who are field-oriented are involved with other long range projects 
and the North Anna project would probably only be of marginal 
Interest to them. Kany, if not most, of the graduate students at 
V.P.I, are involved with laboratory or non-field typos of problems 
and competition to bring in more field-oriented studer;s would 
probably be very keen. 

The Univer3i,ty of Virginia has a couple of distinct advantages. 
It la located very close to the proposed study area. The univorslty 
has a department of environmental sciences, which theoretically 
should be Ideally suited for this type of study. This second 


Professor Rodgers -7- Juno 3, 1975 

feature Is probably one of the most Important dlsadvantaj^es as 
well as advantages of this department. The disadvantace l3 that 
the department docc not have any hard-rock or land-type geoloclsta. 
Moot of their staff i3 involved with ocoanocraphy , marine science, 
high atnosjhere physics, and other technical cater^orlea that are 
not even listed In the A.G.I, directory. This means that if this 
department were to initiate ouch a procram they v.-ould have to add 
at least five or six nev; staff members to the department. Thio 
v.'ould be necessary in order to attract a high quality Rraduate 
student to the university, as well as the need for the proper 
stnff to conduct such rer^.-ional studies. The types of geolcp;l3t3 
that would have to be added to this staff to provide a strong 
Ph.D. program in hard-rock C'^olosy v/ould have to include: 
1) structural geologist (field-oriented), 2) petrolOj':;ist (field- 
oriented), 3) analytical gcochcmlst, ^J ) geophyslclst , 5) geochron- 
olofrist, 6) p;eomorpholoslst. A great deal of technical equipment 
would also be needed to support the r'esearch of these specialties. 
Althoufih these are significant disadvanta.-Ties, they could also be 
considered as advanta^';es in that a nev; pliase of the department 
could bo tailor-made for a wide ranrre of environmental geolor^ical 
problems. In the lor-:; run, such a department mlr:hc be able to be 
mucii more efficient in providing the type of program outlined in 
this report. The University of Virginia may have an unexpected 
advanta.f^e as well with its program in marine g,eolof{;y. If the E-W 
eovth'.'.ua'ce belt is part of the 38th parallel fracture, then I can 
see no reaaon v;hy iTi should terminate at the coastal plain. It is ^ 
posrjlble tlvat this st:,"ucturo continues under the coastal plain and 
continental shelf. If It could be traced through part of these 
provinces then rceanos-ranhlc work along the Virginia coast may be 
able to corrolai j this \;renl v;lth submarine canyons on the conti- 
nental slope anc a tranr>form fault farther out to soa. If t=uch a 
relationship c ^id be pi-o/en, i.e., that the 38th parallel fracture 
Is a transform fault, then wo will have a much better idea about 
the nature of this fault zone and hovr to treat it. It would also 
be possible to then link the origin of this fault 'directly v;ith 
mouels associated v/ith the global tectonic theory. 

Finally, I have been asked to state my interest and availa- 
bility vjith regards to a program that v/ould provide a remedy to 
the j\'orth Anna problem. My Interests are as follows: I am very 
ini;crestcd In the geology of this area, not only from an environ- 
mi-ntal point of vlev:, hut an academic one as v.-ell. I believe that 
any largo scale rescai'ch program in this area would make an impor- 
tant contribution to Appalachian geology as well as to the North 
Anna problem. At the present time I am looking for nev? professional 
opportunities in either the academic or industrial world. I do have 
several offer:-! from universities and industry and I am under 
pressure to respond to those contracts within t!ie next couple of 
weeks or so. Therefore, it is very possible that I vrill be leaving 
Lafayette College this sumjner. I v/ould prefer to remain in the 
academic profession if I can teach at the graduate level and 
conduct research with well-qualified graduate students. Therefore, 


Professor Rodgers -0- June 3, 1975 

if a position were to be available at one of the universities 
mentioned In this report, I vrould be very Interested in it, 
especially if It involved the geology of the area and problems 
discussed In this report. 

HG^G^g""gs Cite d 

Bollinger, Q. A., and Hopper, M. Q., 1971, Vlrt-^lnla's tv/o 
largest o/arthquakes - December 22, 1875 and May 31, 1897: 
Dull. Seismo. Soc. Amer. , V. 61, No. k, p. 1033-1039. 

Hadley, J. 3., and Devlne, J. P., 197^4, Selsmotectonic map 
of the eastern United States: U.S.G.S., ICP-620, p. 1-7. 

HlgGins, M. v;. , Fisher, G. V7. , Johnson, S. S. , and Zoltz, I., 
1973, Preliminary interpretation of an aerorr i;nt:tic map of 
the crystalline rocl:3 of Virginia: Qeoi. Sol. America, 
Abs. with Programs, IJortheastern Sec. Mtg. , Allontovm, Pa., 
V. 5, No. 2, p. 178. 

Paul J. Roper 
Assistant Professor 



Senator Metcalf. The next witness is Mr. Mark Silbergeld, and 
another old friend from Consumers Union. We welcome you to the 
committee. Even though it is 1 o'clock, you have just as much time 
as you need and want, because your testimony is important. 


Mr. Silbergeld. Thank you, Mr. Chairman, I will submit my 
full statement for the record. 
Senator Metcalf. It will be printed. 

56-957 O - 75 


Washington Office: 1714 MASSACHUSETTS AVENUE. WASHINGTON. D. C. 20036 / 202-785-1906 

July 23, 1975 

Honorable Lee Metcalf 


Subcommittee on Reports, 

Accounting & Management 
Committee on Government Operations 
United States Senate 
Washington, D.C. 20510 

Dear Mr. Chairman: 

This Is to update a portion of my testimony of July 22 
on Information management by regulatory agencies. Please enter 
a copy of this letter Into the hearing record preceedlng my 
prepared statement. 

In my prepared testimony, which was originally scheduled for 
delivery on June 25, 1975, and which was delivered to the 
committee staff on June 23, I commented, concerning the Federal 
Trade Commission's line of business program and the General 
Accounting ©fflce's review thereof, that a number of key 
Industries were too broadly defined for reporting purposes, so 
that the government and the public would not be able to obtain 
a very good economic picture of such key products as passenger 
automobiles. My testimony of this past Tuesday reflected this 

Upon returning to my office after Tuesday's hearings, I was 
pleased to learn that earlier this month the Commission's 
submission to QAO of the new proposed Form LB for reporting year 
19T* reflects my suggestions, previously submitted to the Commission 
as a comment on proposed Form LB, with regard to passenger 
automobile. The product category which previously lumped together 
passenger automobiles, trucks, taxlcabs, and a variety of municipal 
and highway maintenance equipment and military vehicles has now 
been very neatly disaggregated by the Commission so that there Is 
a separate category Including only passenger cars, passenger car 
chases, and passenger car bodies. There are also separate 
categories for trucks, for buses, for combat vehicles, for truck 
trailers and for motor vehicle parts. These changes, which have 
been approved by a vote of the FTC Commissioners, will greatly 
improve the public understanding of these separate product Industries 
when the 197^ line of business report Is prepared and released. 
The Commissioners and the line of business program staff are to 
commended for their responsiveness to our recommendations. Especlall; 

National Office: 256 WASHINGTON STREET. MOUNT VERNON. NEW YORK 10550 / 914-664-6400 


since this matter is highly technical and there la no great 
popular credit to be garnered from making the suggested change. It 
Is clear that the Commission acted out of Its concern for the 
quality of Its data management program. 

I hope that In the near future the Commission will adopt 
additional changes of this sort In a few key areas, especially 
prescription drugs, which I also recommended to the Commission 
and which were not made for the 19 7 'I Form LB. The Improvement of 
the automobile reporting categories certainly demonstrates that 
the Commission has an open mind to constructive suggestions In 
this regard. 

It Is Interesting to note once again, representative of 
your comments on Tuesday, that was a citizen organization, not 
the QAO pursuant to Its review function, which helped to bring 
about chemge. I believe that this matter should still be pursued 
with QAO. 

I want to thank you again for the opportunity to testify 
on last Tuesday. 

Sincerely yi 

Nark Slltierg«id 
Washington Office 

Honorable Lewis A. Engman 
Dr. William F. Long 

[The prepared statement of Mr. Silbergeld follows:] 


Prepared Statement of Mark Silbergeld, Attorney, 
Consumers Union, Washington Office 

Mr. Chairman, Consumers Union ^ appreciates very much the 
subcommittee's invitation to testify at these liearings on informa- 
tion management by the federal independent regulatory agencies. 
Information is the "key to our complex economy. It is used to tell 
managers how to manage, investors where to invest, competitors and 
potential competitors where to compete, government where there 
are regulatory problems, economists how to analyze economic func- 
tions and — in many instances — consumers how to shop. It is our ex- 
perience that the more useful for these purposes information which 
is collected by the government may be, the more likely it is that 
both private interests and, often, the government will seek to kcc^: 
that information from public disclosure. 

The subcommittee has posed a series of twelve questions regard- 
ing regulatory agency information, among them (1) what is the 
quality of the infonnation collected, (2) how has the General Ac- 
counting Office performed its responsilbilities in reviewing proposed 
independent agency forms used to collect information systematically, 

(3) how available is the information collected to the public, and 

(4) do the collecting agencies help the public to find the collected 
information from their files? While we cannot, quite obviously, 
provide the subcommittee with complete and comprehensive an- 
swers to these questions, we believe that the benefit of our experience 
will assist the subcommittee in answering some of them. 

We would like to focus our testimony on three agency informa- 
tion programs. The first is the Federal Reserve System collection 
of bank interest rates for various classes of consumer loans. The 
second and third, which are interrelated, are the line-of-business 
data collection programs of the Federal Trade Commission and the 
Securities and Exchange Commission. The contrasts in these pro- 
grams will illustrate our thesis that the better and more useful the 
information, the more carefully it is kept from the public. 

First, however, we believe that it is important to recognize that 
information costs money. It costs the reporting business concerns 
money to generate and report information to the collecting agencies. 
And it costs the agencies money to collect, analyze and publish the 

On the other side of the coin, of course, there are often benefits 
to be derived from the collection of information, and these may, 
should — and hopefully will — substantially exceed the costs of col- 
lection. The regulatory uses of the information should produce so- 
cial and economic benefits to the public. These benefits may be 
direct dollar benefits in regulated markets or they may overcome 

1 Consumers Union is a nonprofit membership organization chartered in 1936 under the 
laws of the State of New Yorlc to provide information, education and counsel about con- 
sumer proods and services and the management of the family income. Consumers Union's 
income is derived solely from the sale of Connumer Rcportx (maprazine and TV) and other 
publications. Expenses of occasional public service efforts may be met. in part by non- 
restrictive, noncommercial grants and fees. In addition to reports on Consumers Union's 
own product testintr. Coni^umer Reports, with a circulation of almost 2 million, rejrularlv 
carries articles on health, product safety, marketplace economics, and lejrislative, judicial 
and regulatory actions which affect consumer welfare. Consumers Union's publications 
carry no advertising and receive no commercial support. 


the costs of not regulating those markets. Potential and actual com- 
petitors and investors may be enabled to make more intelligent de- 
cisions to allocate among capital markets. Congress may use the 
information to write more effective laws. And consumers may use 
the information to make more intelligent decisions in the market- 

However, since the collection and use of information is not a 
"free ride,*' it is important to eliminate needless collection of infor- 
mation, to eliminate unnecessary duplication of information col- 
lection, and to improve the quality of information collection and 
use. We hope that these purposes will be furthered by these hear- 


The recent experience of Consumers Union in attempting to ob- 
tain information collected by the \Federal Reserve System on the 
rates of interest which selected member banks charge for various 
categories of consumer loans is illustrative of many of the points 
we wish to make here today. The "Fed'' collects, each and every 
month, from some 370 banks across the country, reports of the inter- 
est rates charged on a variety of consumer installment loan cate- 
gories. This information is, of course, available to any consumer 
from the individual bank upon inquiry, since interest rates are the 
means by which banks compete for loan customei'S and, in any 
event, disclosure is required by the Federal Truth in Lending Act 
prior to entering into the loan agreement. 

However, an inquiry to each reporting bank in the local commu- 
nity would have been necessary for a consumer who wanted to shop 
for bank credit. It would obviously be us(?ful to find in one place 
all of the rates for the reporting banks in a given community. The 
Fed, however, until recently, only reported this information in 
aggregate form, in their so-called "G.IO" survey. Therefore, in the 
summer of 1973 the San Francisco Consumer Action Group, a par- 
ticularly effective and resourceful consumer group serving the Bay 
area, sought our assistance in obtaining the individual bank data 
for use in a proposed consumers' guide to banking institutions. 

We requested the Fed to give us access to the interest rate data 
but without success. In September 1973, we were obliged to file 
suit against the Board under the Freedom of Information Act. The 
Fed's position was that this information was confidential because 
the Board had assured the banks that it would be treated as such. 
We argued that this information Avas not confidential (much of it 
is advertised by banks, all of it is given to bank customers on an 
individual basis), that the Board had not in fact assured the banks 
of confidentiality with respect to this survey, and that under well- 
established case law under the Freedom of Information Act, such 
an assurance — even if given — would have no legal effect whatsoever. 
The Fed filed with the court a number of affidavits from bankers 
and Fed officials detailing the tragic and baleful consequences to the 
banks and to the Fed itself if the interest rate information were 
publicly disclosed. The "horribles" that were predicted included: 
the destruction of the Fed's data-gathering capabilities; the sub- 


mission to the Fed of inaccurate data by banks; a refusal by the 
reporting banks to participate in the survey; competitive harm to 
reporting banks; impairment of relationships between the banks and 
their customers; and misleading of consumers by those who would 
publish the information. 

In making these blanket claims, predictions, and representations 
to the court, the Board apparently played rather fast and loose with 
the facts. First, the Board vigorously resisted our suit and made 
these claims without even bothering to find out whether or not the 
reporting banks did in fact consider this information confidential, 
and if so, whether that confidential status extended to all or only 
some of the information. Second, even if the Fed considered this 
information to be confidential, and even if it was correct in that 
determination, the Board was obligated under the Freedom of In- 
formation Act to determine whether all or only some of the request- 
ed information was confidential, and whether all or only some of 
the banks considered it to be so, and to publicly disclose what was 
not confidential. The Board did none of this but simply made a 
blanket claim of confidentiality for all of it and for all banks. Third, 
the Fed never indicated whether the few banks whose affidavits were 
submitted were selected at random or not, but in view of the 
striking similarity in wording of the affidavits and in view of 
what subsequently transpired, we have the firm impression that the 
Board made no effort to determine how the reporting banks actually 
felt about disclosure but instead tried to create the impression that 
the banks submitting affidavits were representative of the 870 banks 
in the survey. 

Most shocking, however, is the fact tliat in December 1978, the 
Board conducted a special survey of banks participating in the G.IO 
survey, inquiring as to whether the banks considered the interest 
rate information with respect to credit card loans — one of the loan 
categories at issue in the lawsuit — to be confidential. Of the 171 
banks responding to this special survey, 73.7% stated that the 
information was not confidential, a statistic that made an utter 
mockery of the Board's position in the lawsuit, at least with respect 
to the credit card loan category. Yet the Board never even revealed 
to the court the existence of that special survey, much less its dra- 
matic — and legally relevant — findings, and to this day has never 
done so. We only learned of the existence of this survey in a dis- 
cussion with Board officials on April 8, 1975, when we happened 
to ask if any such surveys had ever been conducted. 

In May 1974, the U.S". District Court held that nil of the infor- 
mation that we had requested was in fact in the public domain, was 
not confidential, and must be made publicly available by the Fed 
under the Freedom of Information Act. The Board immediately 
obtained a stay of that judgment pending appeal, and filed an ap- 
peal. In November 1974^ the Court of Appeals remanded the case 
to the District Court for further findings. In January 1975, after 
having been held up by the Board for almost one and one-half 
years, we offered to settle the case on the following basis: we would 
agree to obtain the data on a prospective basis onlv (beginning with 
the February reports), thus enabling the Board to "save face with the 


banks to whom it claimed (contrary to fact) to have assured confi- 
dentiality, and we would agree not to seek some of the data to 
which, the District Court had ruled, the Freedom of Information 
Act entitled us (but which was of less interest to consumers). 

On February 19, 1975. we were informed by a Board official that 
the Board had information that our magazine. Consumer Reports^ 
was publishing some of the interest rate information in its March 
issue, that the Board viewed this matter with the gravest concern, 
that Chairman Burns was "determined to get to the bottom of 
this," and that the Board was requesting that Consumer Reports 
refrain from publishing the information. We replied that it was 
too late to stop publication of the information and that even if it 
were not too late, that Consuiner Reports would feel an obligation 
to its readers to publish it, particularly in a period of inflation, 
high interest rates, and high unemployment, a period in which con- 
sumers needed all of the help they coidd get. We subsequently were 
informed that in view of these developments, the Board was break- 
ing off settlement negotiations. 

Several days later, the Washington Post brought to light the fact 
that Chairman Burns had requested the FBI to conduct a criminal 
investigation of the "apparent theft" of the information. This was 
followed by Congressional inquiries into the matter, including cor- 
respondence from Congressman Patman to Chairman Burns. As a 
result of these revelations, the Board informed us on March 3, 1975 
that it had authorized its staff "to determine from the member 
banks of the Federal Keserve System voluntarily participating in 
this G.IO survey the extent to which the interest rate data they 
report on Form"835 may be generally available to the public." Note 
that the Board decidecl to take this elementary step not before it 
rejected our original request for information, not before it forced 
us to bring suit, not before it submitted affidavits to support its 
insistence that disclosure of this information would be calamitous 
for the industry and for the Board, not before it took an appeal, 
and not before' it tried to pressure Comum^r Report!^ to suppress 
the information — but only after the most intense public embarrass- 
ment and Congressional pressure had been brought to bear, and 
after we had made it clear that we would go back to the District 
Court to establish once again our legal right to the information. 

The results of the Board's survey were given to us informally on 
April 3, 1975, they have never been made public by the Board. And 
with good reason, for they could hardly be more damaging to the 
Board's position in this whole sorry affair. Of those banks with a 
single interest rate for a particular consumer loan category, over 
90% responded that none of the information reported to the Fed 
was confidential. Even in the case of those banks which charged 
customers varying interest rates for consumer loans, more than 50% 
stated that none of the information was confidential. It also turned 
out that despite all of the Board's predictions that disclosure would 
cause large numbers of banks to drop out of the survey, only about 
ten fewer banks had reported to the Fed after the public listings 
of banks and rates in Consumer Reports than had reported before 
the listings were published. 


When the Board officials showed us the results of their own survey, 
we assumed that this now-ancient controversy was finally at an end 
and that the Board would now comply with our original information 
request. We are buoyed in this conviction by the results of two small 
surveys which we conducted ourselves, in which every bank sur- 
veyed stated that the information was not confidential. We did not 
count on the Board's tenacity, however, for their initial response 
was that they would continue to withhold any of the interest rate 
information which a bank deemed confidential— however unreason- 
able that bank might be in view of the results of the Board's own 
survey. It was only after we threatened to go back to court to obtain 
all of the information, retrospective as well as prospective, that the 
Board backed down and agreed to make all of the data public be- 
ginning May 1, 1975. 

This story, unfortunately, does not have a very happy ending. 
First, Consumers Union incurred enormous expense to fight this 20- 
month legal battle, expense which it can ill afford and which the 
Fed refuses to pay. Second, and most tragic, the Fed employee who 
gave Consumer Reports the information that the court, the banks, 
and the Fed now concede is publicly available under the Freedom 
of Information Act, was forced to resign from the Fed in the face 
of a threat of criminal prosecution by the Justice Department. 

This is clearly an instance in which the information collected by 
the regulatory "agency is useful to the public in making market- 
place decisions. And it is clearly an instance in which the regulatory 
agency went to great lengths to keep the disaggregated data from 
the public 


Two seemingly related regulatory agency information programs 
of interest to the subcommittee's inquiry are the line-of-business 
programs at the Securities and Exchange Commission and the Fed- 
eral Trade Commission. These illustrate well that where the infor- 
mation is more accurate and, thus, more useful, it is less available to 
the public. 

The Securities and Exchange Commission for a number of years 
has required the nation's larger registered corporations to include, 
in their Forms 10-K, which are available to the public, so-called 
"line of business" information. According to the SEC's instructions 
for completion of Form 10-K, this information is to include for 
each line of business for each of the past five fiscal years, the ap- 
proximate amount or percentage of (i) total sales and revenues, and 
(ii) income or loss before income taxes and extraordinary items, if 
the line of business for either of the last two fiscal years constituted 
a major factor in the company's business operations.^ Product line 
sales and revenues and income or loss figures hardly give a picture 
of a corporation or an industry, of course, but when aggregated 

1 Defined as constituting (a) 10 percent or more of total sales and revenues, or (b) 10 
percent or more before income taxes and extraordinary items computed without deduc- 
tion of loss resnltinp from operations of any line of business, or (c) a loss which 
equjillert or exceeded 10 percent of the previous item "(b)". provided that of total sales 
and revenues did not exceed $50 million during either of the last two fiscal years, the 
percentages specified above shall be 15 percent instead of 10 percent. 


amon^ the leadincj firms in a particular product-defined industry 
such information is essential for use by industrial economists, actual 
or potential antitrust plaintiifs (including the government), stock 
market analysts, corporate investment analysts, and so forth. There- 
fore, if this information as collected by SEC is reliable, timely and 
available, substantial and beneficial use would almost certainly be 
made of it. 

However, there are some substantial Catch-22's. First, the report- 
ing firm itself decides which and how many products are included 
in a given line of business. Thus, when the Federal Trade Commis- 
sion's staff a few years ago studied the Forms 10-K for nineteen 
corporations, it found that "[wjhereas the average number of lines- 
of -business per company [as reported on 10-Ks] was five, the aver- 
age number of corporate divisions was 31." Further, the FTC staff 
discovered, "Many of the so-called lines of business of the largest 
corporations encompassed operatio\is in as many as 40 different 4- 
digit [SIC] industries. 

Thus, according to the FTC, corporations were not reporting (and 
do not report) lines of business v\hich corresponded with product 
markets, but were reporting very broad lines of business, sometimes 
as broadly groups as "Consumer Products'', which minimized the 
usefulness of the 10-K data. 

Additionally, since each firm defined its own reporting lines of 
business, there was no comparability between firms, so that econo- 
mists and others cannot use the data to construct a picture of any 
given industry's structure or profits. 

Further, while the nature of the changes must be generally de- 
scribed in the 10-K, a firm is free, from one reporting year to the 
next, to change various products from one line-of-business to an- 
other, so that if it has an incentive to do so, it may render its own 
product line performance not comparable from one year to the next. 

Both because of the lack of comparability within and between 
firms and because of the lack of other relevant data — such as adver- 
tising expenditures, research and development expenditures, and the 
like — FTC in the early 1970s determined to undertake its own "line- 
of-business'' reporting program, despite a previous experience in 
which the announced intention to study the economic performance 
of the nation's top 100 manufacturing corporations had resulted in 
an FTC appropriations rider prohibiting such a study. After the 
1973 Hart Amendment to the Alaska Pipeline Act was passed, re- 
lieving FTC from some two-and-one-half years of resistance to the 
Line of Business program from the Office of Management and 
Budget the program was soon submitted to the General Accounting 
Office under the new procedures for clearance of independent agency 
data and cleared by 0MB for use by the FTC. I will have a few 
words about that 0MB clearance process in a few moments. 

The line-of-business program which the Federal Trade Commis- 
sion is now in the process of instituting ^ is a substantial improve- 
ment over the so-called line-of-business program at the SEC, with 
regard to the quality of the data. Plowever, needless to say, the im- 

' The effort to collect the data from several firms has been hampered by litigation 

initiated by those firms. 


proved quality and usefulness of the data has resulteu m lesser 
public availability of the data, pursuant to both the FTC's initial 
rules on public disclosure and subsequent Congressional enactment 
of a rider on the FTC's fiscal year 1975 appropriations act. Thus, 
the public has its choice between fully disclosed data of very 
limited use at SEC and undisclosed data of very great potential 
use at FTC. Nevertheless, the aggregated data which FTC eventu- 
ally will release on an annual basis, industry by industry, will be a 
tremendous improvement over the data contained on SEC Form 

The FTC data itself is more extensive than the SEC data. In 
addition to the sales and revenue and income or loss data by "prod- 
uct line", FTC Form L-B calls for disclosure of such additional 
items as material costs, labor costs, gross margins, media advertis- 
ing expenditures, other selling expenses, general administrative 
expenses, total assets and various asset and capitalization data. All 
of this information is being collected by FTC-defined product cate- 
gories which will be roughly comparable from firm to firm ^ and 
will be disclosed on the FTC-defined aggregate product industry 
basis annually. 

From our point of view, the biggest disappointment regarding 
the FTC data — in addition to the non-disclosure to tlie public of 
individual firm data — is that FTC has defined several key indus- 
tries over-inclusively, so that what we will be able to learn about 
them from Line-of-Business reports will not be adequate. For 
example, FTC's product line reporting category for passenger auto- 
mobiles will include, in addition, ambulances, amphibian motor 
vehicles, powered brooms (i.e., street sweepers), armored cars, fire 
department motor vehicles, street flushers, hearses, motor buses, 
trucks, personnel carriers, reconnaisance cars, i^oad oilers, taxicabs, 
and virtually all parts used in the assembly of automobiles or as 
auto replacement parts. It is clear that neither FTC nor the public 
will have a clear statistical picture of the very important passenger 
automobile manufacturing industry from the FTC line-of-business 
report on this product category. 

One of the arguments used to justify the use of such a broad 
category is the accounting costs involved in keeping and reporting 
data on a narrower basis. In the case of passenger automobiles in 
particular, however, this argument seems ill-founded. First, as is 
true of all cost-based objections to Form L-B, claims of cost have 
not been supported by sound cost justifications which would meet 
general financial accounting standards. Second, in this particular 
category which includes passenger automobiles, there are many 
kinds of vehicles which can be factored out because separate and 
very specific data must be kept on them for government contract 
accounting purposes. Fnally, due both to the lack of objection cost 
data and to the difficult v of measuring benefits which would accrue 
from the data quality improvement, even a demonstration of sub- 

1 Up to 15 percent "contamination" of the data by inclusion of information on different 
but operationally-related prodncts will be permitted : this is not desirable but is better 

**." c^r"2' ^^'^^^ "''^ available. For example, a plant which manufactures 15% newsprint 
and So% paperboard may report all of the data on that plant as paperboard. If the 
product mix were l6%-84%, separate reporting categories would be required. 


stantially increased accountino; costs does not necessarily demon- 
strate a justification for use of the less expensive broader product 
category. Even if it would be substantially more costly to use the 
narrower than the broader category, it is quite possible that the 
benefits would justify this, but we are dealing in benefits such as 
improved capital investment decisions and improved decisions to 
enter new markets which are virtually impossible to quantify. 
Therefore, agency decisions as to how much more cost is justified 
or how much more cost is too much cost is a matter both of judg- 
ment and of policy, not a matter solely of cost accounting. 

The same is true in such other important product categories of 
current or continuing economic concern as fuels, fresh meat, and 
ethical drugs. We called GAO's attention to this problem in our 
April, 1974 comments to GAO in connection with the Comptroller 
General's review of the proposed Form L-B.^ The GAO, in its sub- 
sequent approval of Form L-B, p^id a great deal of attention to 
the question of the costs to the reporting companies which would 
result from the issuance of orders to file Forms L-B — a question 
which the Hart Amendment requires GAO to address. The GAO 
did not mention at all, however, the increased usefulness of the 
data which would result from an improved definition of a few key 
product categories — although GAO is also required by the Hart 
amendment to address the question of whether the form in Avhich 
the regulatory agency proposes to collect the data will maximize 
its usefulness to the' public. Since it is clearly an issue of great 
public interest whether the Federal agencies, the Congress and 
the public have good or not very good data on the economic per- 
formance of such key industries as automobiles, meat processing, 
drugs, and energy, we must judge GAO deficient in its performance 
by reason of its failing to address this important issue after it was 
raised both in written comments and at a meeting between GAO 
staff and consumer representatives. 

We have also called FTC's attention to this problem in our May, 
1975 comments on proposed revisions in Form L-B, but the Bureau 
of Economics staff is unable to tell us what changes, if any, will 

Our conclusions regarding the two line of business programs can 
be stated as these. The SEC progi-am is not very useful but it is 
very available to the public. The FTC program would be very 
useful if the information were available, but it is not available 
except in aggregate, industry-wide form. However, the FTC in- 
formation, even though only disclosed in the aggregate, is better 
than any information presently available, from the SEC or any 
other public source. 

Mr. Chairman, we have presented a look at only three govern- 
ment information systems this morning. We have had experience 
with other government information systems, both at regulatory 
agencies and within the executive branch. While there are, obviously, 
types of information which are systematically made public much 
more readily than the FRB interest rate data or the FTC line of 

1 A copy of these comments was submitted for the record. 


Business data/ our other experiences nonetheless generally com- 
port with the aforestated conclusion that the information's avail- 
ability to the public, where the agency has discretion to make dis- 
closure, is likely to be inversely proportional to the quality and 
usefulness of the data. ( End of prepared statement, ) 

Mr. SiLBERGFXD. I must warn you that frequently my summaries 
run as long or longer than my prepared statement. I will try to min- 
imize the amount of time that I require today. 

Consumers Union, as you may know, has long been involved in the 
question of agency-collected information. When the Freedom of In- 
formation Act was enacted and became law, we filed one of the first 
suits in the country in order to obtain hearing aid data from the 
Veterans Administration, which they refused to disclose even though 
it would have given shoppers for hearing aids a tremendous amount 
of useful information in shopping for the best product at the best 

About 2 years ago now, I guess it was, we successfully — and this 
is one of the few instances I know in which this has happened — got 
the temporary emergency court of appeals to rule unlawful the Cost 
of Living Council's regulations under the Hathaway Amendment, 
which dealt with the form in which they were required to collect and 
disclose information on tier T reporting firms. 

We have, and I have personally, spent a great deal of time watch- 
dogging the Federal Trade Commission's line of business program. 

And. as everybody knows from recent TV and newspaper stories, 
we were involved in the reporting of "secret" public information. 
The Federal Board has created that new category. 

We now have "secret" public information with regard to interest 
rates. Chairman Burns was so outraged that the public could get 
from consumer reports what they could get by walking into any 
bank, that he called in the FBI to find out who made this public 
information public. 

Our experience with all of this boils down to what I suppose I 
would call Silbergeld's law, except that there is an old rule of trade- 
mark law that says you can't trademark something that is obvious, 
and that law is that the more useful the information is to the public, 
the less likely it is to be available to the public. 

Senator Metcalf. We will add that to our collection of law. 

Mr. Sii.BERGEi.D. I think that goes right along with the three rules 
of law that you enunciated at the beginning of the session this morn- 
ing, Mr. Chairman. 

To illustrate this, I would like to briefly look at three experiences, 
first the Federal Reserve Board interest rate experience, and then a 
comparison of the Federal Trade Commission and Securities and 
Exchange Commission line of business program. 

The last two provide an interesting contrast, which illustrates our 
point all too well. 

At the same time, I would note that of course it costs money to 

1 For example, the FTC public disclosure regulations provide for disclosure of much of 
the information contained in the closed files of law enforcement investigations under- 
taken by FTC. even though such information at least arguably is exempt from disclosure 
under the Freedom of Information Act. 


collect data. Data is not a free ride. It costs money to run the 
Government agencies or the Government agency segments that de- 
sign the questionnaires, process the returns, see that they are prop- 
erly completed, and then analyzed the returns and make the infor- 
mation public. And it costs additional money for the reporting firms 
to provide the information. 

Therefore, we ought to make sure that the information we are 
collecting is useful, is not duplicated and is — this is most important, 
I believe — used with the maximum efficiency, including the assurance 
that it is collected in a form which permits maximum use by the public 
and the Congress. 

That doesn't happen very often. I will give you a good example 
when we get the FTC line-of-business program. 

The Federal Reserve experience was very interesting because, as I 
have said, the information that we sought from the Federal Reserve 
Board and wliich we had to go to court to obtain is something that 
you, as a customer, of a bank or a prospective customer of a bank can 
get by walking in and asking how much you would have to pay for a 
particular type of loan. 

Indeed, the Federal Truth in Lending Act says that before they 
conclude or enter into a loan agreement with a customer, they must 
provide that interest rate information in a disclosure form which 
meets the requirements of the Fed's regulation Z. 

The Fed collects interest rate information for various categories 
of consumer loans from a sampling of, I believe it is 370 banks 
around the country. 

This information, of course, would be most useful to consumers 
in the cities where there are two or more banks in the reporting 

The San Francisco Action Group a couple of years ago decided 
that they would take advantage of the potential usefulness of this, 
seek the information so that they could provide consumers who were 
shopping for credit with a booklet on this information for the Bay 

They sought our help and we requested the information from the 
Fed. We Avere told that this information once it was collected was 
confidential because the banks which submit the information consider 
it confidential. 

So we filed the Freedom of Information suit. The Fed continued 
to make, throughout the litigation, a blanket claim of confidentiality 
for all of the data for all of the banks. Unknown to us and unknown 
to the court until late in the litigating game was a secret Fed sur- 
vey, showing that 73.7 percent of the banks who responded to the 
Fed questionnaire on this question did not consider the information 

We accidentally learned of this in settlement discussions with the 
Federal Reserve Board staff. 

In May of 1974, we obtained a favorable judgment from the U.S. 
District Court and the Fed immediately appealed. 

In February of 1975, while the case was pending before the Court 
of Appeals, there was leaked to Consumer Reports the data that we 
were seeking in court. After some discussion among the legal staff 


outside counsel with the journalists at the magazine, we decided that 
this information was public and we were entitled to use it and we 
determined to go ahead and use it. 

When Chairman Burns found out that this public information was 
going to be published and made available to the public, he called in 
the FBI. It was only after at least two, and I believe three, it may 
have been as many as four Congressional subcommittees, demanded 
to know why somebody was being investigated for making public 
information that was already public in its uncollected form did the 
board back down and finally agree that beginning with the data for 
May 1975, this information will be made available on a regular 

Throughout this process the Fed claimed, and I think this is im- 
portant, Mr. Chairman, because it is a claim that comes up every 
time it is suggested that information collected or to be collected by a 
regulatory agency should be made public, the Fed claimed that dis- 
closure without result in a discontinuance of the fine, voluntary co- 
operation which they had had from the reporting banks. 

We hear that everytime it is suggested that data from a regulatory 
data program be made public. 

Only 10 of the 370 reporting banks have discontinued their volun- 
tary cooperation. 

Senator Metcalf. Were those 10 the largest banks ? 

Mr. SiLBERGELD. I dou't kuow who they are. I can try to find that 
information for the record. I would add that that is without any 
effort to our knowledge of the Fed to seek to enforce the requests 
for information. 

Senator Metcalf. I will ask Mr. Reinemer if we can find out who 
those 10 were.^ 

Mr. SiLBERGELD. The other interesting thing, of course, is that the 
assumption is that the information can only be obtained if it is 

Senator Metcalf. If it is just 10 of the medium-sized or smaller 
banks, it would seem to make very little difference. If the largest 
banks in the country are willing to vohniteer this information, it 
would seem that we should require it from every bank. 

Mr. SiLBERGELD. I would think so. I would also emphasize your 
word "require," Mr. Chairman, because it seems to me while the 
Government puts a great deal of einphasis on cooperation that the 
public has a great deal more confidence in information which is re- 
quired under some penalty of law for the filing of incorrect data. 

This may not necessarily be the program, but I am always puzzled 
when agencies complain that they will have to use process. Yes; I 
understand that there may be a period in which there is litigation to 
resist the collection of the data on the ground that it is going to be 
made public. 

Senator INIetcalf. I am not going to argue with you about that. 
But I want to say that sometimes this committee has written to 
sorne of the largest corporations, some of the largest banks in the 
United States and has had voluntary cooperation. And we rely on 
that and appreciate it and go forward with some of the other investi- 
gations regarding corporations that don't comply. 

1 See p. 209. 


INIr. SiLBERGELD. I ajTi'ee. INIy problem is where there is resistance 
and the committee would rather use an assurance of confidentiality, 
not the committee but the agency would rather use the assurance of 
confidentiality than a subpena, even though the information should 
be made public. 

The sad upshot of this is that not only did we have to spend 2 
years in litigation to make public information that everybody thinks 
should be made public. 

Senator Metcaijp. But some of the leadership that we have seen in 
disclosure of the information has come from voluntary disclosure of 
a handful of corporations. I remember INIobil gave us some informa- 
tion as to its stockholders. The First National City Bank was the 
first one that disclosed its investment portfolio. After that we had 
disclosures from others. 

So I want to give full credit to these people who came in and said 
we want to have disclosure; we wknt to volunteer and we want to 

Mr. SiLBERGELD. We have had that experience just recently also. In 
February, late January or February, we sent a questionnaire to the 
largest airlines, asking for their information on information about 
the use of credit cards, and on discounts to travel agencies. 

All but one of the airlines replied that they couldn't give us the 
specific information. ]\Iany of them claimed because it was, it was 
confidential, business information, and so forth. 

TWA had no problem. Sent it right to us. If TWA could volun- 
tarily provide that, it not only disproves it all, but it was very reas- 
suring to find that somebody was not just falling back on the old 
stock, boilerplate reply to every request for information that comes 

We were very pleased to see that we could get that information 
voluntarily without having to go through the CAB. 

Senator" INIetcalf. Maybe, as a result of that leadership, or at least 
the volunteers, we will get other information from other airlines 
because they will just say, look, if TWA provided this, so can North- 

I want at this time to give full credit to these public-spirited 
leaders who have volunteered the information and haven't hidden 
behind all of these stereotyped and boilerplate things that you are 
talking about. 

Mr. SiLBERGELD. It is refreshing when we see it. 

The line-of-business programs are interesting because we have two 
supposedly similar programs run by two different agencies. We can- 
not only contrast the information but also contrast the availability 
of the information as a function of its accuracy and usefulness. 

The SEC requires disclosure annually, by registered corporations 
over a certain size, of so-called line of business information. The in- 
teresting thing about the SEC's requirement is that it permits the 
reporting companies to define their own lines so that within a line 
of business you may have such a jumble of different products which 
are not substitutable or not in competition with each other, so that 
even if you just look at one company's products you don't know 
what the data reallv relates to. 


When you try to take that information and compare it with the 
information from companies that are in competition in various lines 
of business with that company, it becomes completely incomparable 
because they may have put the same competing product into two 
different SEC line of business reporting categories. 

Furthermore, the SEC permits the company, provided it explains 
what it is doing, to change the reporting category for any given 
product from one year to the next. So that this year's and last year's 
reporting category will not necessarily contain the same products for 
purposes of comparison. 

When you take both of these variables, what it means is that the 
SEC's line of business program really isn't very useful if you want 
to compare this year with last, or if you want to compare company 
A with company B with regard to specific products or product cate- 

As a matter of fact, when the FTC was developing its line of 
business program, its Bureau of Economic staff did a study. They 
found that, in a sampling of large SEC reporting firms, the firms 
averaged 31 corporate divisions, but only 5 different reporting line 
of business categories for the SEC requirement purposes; that some 
of the lines that were reported as a single line of business to the 
SEC annually had as many as 40 separate four-digit SIC standard 
industrial classification categories. 

This meant, of course, that that information was completely useless 
for industrial analysis. I would add I think it made the information 
pretty useless as far as investors are concerned, too, and certainly as 
far as stockholders are concerned if they want to know if the com- 
pany is holding onto losing operations. 

Nevertheless, the finding was that there were as many as 40 sep- 
arate four-digit SIC categories in a single so-called line of business. 

The FTC program defines categories much more narrowly ; that is, 
it seldom has more than — it is never broader except for the nonman- 
ufacturing categories such as mining and agriculture than a three- 
digit SIC group and frequently within a three-digit group the FTC 
will, from the three-digit category, break out one, two, or three re- 
lated four-digit SIC categories in which it has a special industrial 
analysis interest and define that as a separate line of business for 
reporting purposes. 

So the information to be obtained from the FTC program is very 
much more defined in terms of products which compete with each 
other in the marketplace. 

It is therefore much more useful. Needless to say, if we apply the 
law which I suggest, it should not be very difficult to determine that 
the SEC information is fully available to the public while the FTC 
information, because it is so much more useful and reliable is not 
available to the public and will not be available to the public except 
in aggregate form by industry-wide category. 

So that we will never know if we see five or six, say, companies 
in a reporting category how the profits, the costs, the advertising 
to sales ratios break down by leading firms versus the smallest firm 
that is reporting to the FTC." Because the information is much better, 
the information is not public. 


That is partly because the FTC decided they would have to pro- 
ceed on that basis. When they bep:an this program, the program was 
extremely politically sensitive. I believe you were around, INIr. Chair- 
man, back in the 1960's when Rand Dixon was Chairman and the 
Commission sought to do a study on the 100 largest corporations. 

Congress attached a rider to the Commission's appropriations bill 
and ordered them not to do it. The Commission was w^ell aware of 
that when they designed the present line of business program. 

They themselves decided for whatever reasons, but I am sure that 
was in the back of their minds, if not in the front of their minds, 
that it would be impolitic to both seek this information and seek to 
make it public. Sure enough, the House Appropriations Committee 
attached a rider to the FTC's fiscal 1975 appropriations, which as- 
sured that the Commission's own understanding of the political 
situation became a matter of law. 

So we won't know it because the data is too good. I must say I 
have some complaints about the data and I also have some com- 
plaints about GAO. 

The data will allow up to 15 percent contamination at the estab- 
lishment level. If a company has a plant that is making two non- 
competing but industrially related products, made out of the same 
manufacturing process, the same equipment, but which don't com- 
pete with each other, such as newsprint and paperboard used in 
construction, if a company is making paperboard at its plant, at a 
particular plant, and 15 percent of the plant production is in news- 
print, the byproduct, they can report it all as paperboard. 

That will' result in some substantial contamination; but it is still a 
lot better than what we have. 

The thing that really bothers me about it is a few key reporting 
categories. Presumably' you would say the FTC is now going to have 
a line of business program in which they define the reporting cate- 
gories and they don't let the companies change it from year to year 
and they are really going to get the goods, now we can tell what is 
going oil in the automobile industry. Right? Wrong. 

The passenger automobile which is probably the singlemost im- 
portant industrial product in our economy is going to be reported 
to the FTC in a reporting category which also includes, and I will 
read from my prepared testimony here, "ambulances, amphibian 
motor vehicles, powered brooms — that is, street sweepers, annored 
cars, fire department motor vehicles, street flushere. hearses, motor 
buses, trucks, personnel carriers, reconnaissance cars, road oilers, 
taxicabs. and virtually all parts used in the assembly of automobiles 
or as auto replacement parts." ' 

That is how much we are going to know about the competition and 
the other information that is going to be collected on the passenger 

Senator Metcalf. Do all of the automobile manufacturers make 
all of those various exotic sort of vehicles? 

]Mr. SiLBERGKLD. I dou't kuow if American does. The three largest 
domestic manufacturers certainly do or virtually all of them. If 

See updating letter from Mr. Silbergeld preceding his testimony, p. 142. 


they don't make all of them, they make some of the other things in 
the category that I didn't include, and it involves a lot more military 
vehicle type of equipment. 

The distressing thing is, and I note that it is one of the questions 
posed by the committee, how is GAO perfonning? Pursuant to the 
Alaska pipeline provisions, GAO first reviewed the form L-B in 
early 1974, Mr. Chairman. One of the things that they did in 
reviewing it was to call a meeting with a group of consumers. GAO 
wanted consumer criticism and comments on FTC's first report of 
the proposed form L-B. 

Senator ]\Ietcai.f. "W^io was the first one to discover that the right- 
of-way was illegal and too broad ? 

Mr. SiLBERGELD. I am sorry? 

Senator JNIetcalf. In the Alaska Pipeline case, of course, some- 
body came up with the discovery along the line that the right-of-way 
granted by the Secretary of Interior was illegal. It was a right-of- 
way for pipelines that was narrower than the one that was granted. 

Who was the first one to discover that? 

Mr. SiLBERGELD. I dou't kuOW. 

Senator Metcalf. Did GAO discover it? 

]Mr. SiLBERGELD. I dou't think so. I am quite certain not. 

Senator Metcalf. The Department of Interior didn't know about 
it. I just wonder. There was an environmental suit and the court 
quite properly held that Congress passed a law and said you were 
allowed to have a right-of-way of a certain width, and all of these 
people screamed to high heaven that they couldn't exist with such a 
right-of-way, but that was the law and the court quite properly 
issued an injunction. 

But nobody discovered it for a long, long time. The laAv provided 
that we were granting a right-of-way. 

JNIr. SiLBERGELD. This is another instance of that because the law 
witli regard to reports that have to go through GAO has two pro- 
visions in it. One thing they are supposed to review for is the cost 
and the burden to the reporting companies. 

The other thing that they are supposed to review for is whether 
the data is being collected in a form which makes it maximize its 
usefulness to the public and the Congress. 

GAO spent a great deal of time, in their report to the FTC, on 
the question of cost to burden. They spent no time in response to our 
comments to them about the definition of the passenger automobile 
reporting category or several other categories even though each one 
of these is their responsibility. 

That is most interesting because we are still stuck with what is 
going to be completely inadequate reporting category definition for 
passenger automobiles. 

On the question of costs in which GAO spent most of its time in 
reviewing the form I^B for the FTC, we had a situation where they 
were being told by the FTC that it would cost about $10,000 per 
reporting company. 

That was their initial estimate. It was upped several times; FTC 
was told by the companies that it would cost hundreds of thousands 
and some companies said for them millions of dollars for reporting. 


Now we see GAO, haviiif^ spent all of its review effort on cost that, 
for those 228 companies that have so far reported to the FTC for the 
first line of business report instead of going to court and seeking 
an injunction, that the average cost per reporting firai. in the face 
of the FTC's $10,000 estimate and the firm's estimates in the hun- 
dreds of thousands or millions of dollars, was $56,000 per reporting 

If the FTC was off initially by a factor of five or six, then the 
companies were off by a factor of several thousand. 

I think that does not reflect well, Mr. Chairman, on GAO's per- 
formances of its responsibilities, although they should rightly be 
concerned about cost and burden. Of course, I have the advantage 
of hindsight, but nevertheless as it turns out, the company's claims 
were greatly exaggerated, and while GAO spent all of their effort on 
that question, they completely ignored the question of whether the 
information was being collected inYhe most useful form. We got no 
GAO input on that. I would like to see, and perhaps this Committee 
can make its views known to some redress of the balance, so the 
GAO pays as much attention to the question of whether Congress 
and the public can use the information; or best use it in the form 
collected as to the question of reporting burden. 

"\ye see reporting burden exaggerated every time we seek informa- 
tion through the Federal Government. They should become ac- 
customed to that. 

We see on the other hand consumers saying we aren't — I'm going 
to pick up ]Mr. dayman's theme — We aren't going to get the in- 
formation in the form we need it if you let the questionnaire go 
through like this. 

You have to be more demanding from the reporting firms. 
That concludes my summary, ISIr. Chairman. 
Senator ]Metcalf." The entire statement has been included in the 

Mr. Rytkr. I appreciate very much your testimony. It is very fine 
and tracked a lot of areas that I think need to have a lot more 
public hearine; that we have had in the past. 

As a member of Consumers Union myself, I am appreciative that 
you do come up here and testify and let the Congress know what is 

I certainly don't think, and it is not meant in any sort of forward 
way, but vou asked the question in the beginning of your testimony, 
which was who should absorb the cost burden? It is a question that 
I think the minority would be interested in finding out what your 
expert opinion should be. 

If we do have an average cost at an aggravated SIC level of 
$56,000 per firm under this line of business reporting, who should be 
made to take the burden? 

Mr. SiLBERGELD. The public should, because the purpose of the in- 
formation is to benefit the public. We pay for it in two ways: for 
the costs that are incurred at the FTC, and the GAO, we pay for it m 
our tax dollars. 

The costs incurred due to the burden on the reporting company, 
we pay for that in the cost of goods. 


Mr. Ryter. So you feel we should have a reimbursable system ? 

]\Ir. SiLBERGELD. No. I am perfectly happy to have it passed along; 
the way it is now because the people who are supposed to be bene- 
fiting from the tangible and intangible benefits of such a collection 
program are the people who purchase those particular goods. 

But the thing that bothers me about all of the discussions about 
costs is we always talk about it in terms of a flat number of dollars. 

We seldom discuss it in terms of its impact upon the total price 
or upon the reporting corporation's total revenues. 

I had an interesting experience a few years ago. I was upon the 
Hill to testify on Senator Proxmire's Fair Credit Billing Act. 
Tagged on as a title toward the end of that bill were some amend- 
ments to the Truth in Lending Act. 

We had a roll call and Senator Proxmire and minority members 
went out to vote. Some of us were standing in the hall. The credit 
council for a large department store, which has its own credit card 
system approached me. 

He said, "We are with you all the way on the Fair Credit Billing 
things, but for Lord's sake, don't support these Truth in Lending 
amendments because it means that everybody who uses a computer 
to manage their credit system will have to reprogram, and that is 
going to cost us X millions dollars."' 

I said "Jack, that is great. How many accounts do you have?" 
I did a little simple division. It came out to be a one-time charge 
of 19 cents per account to substantially improve the Truth in Lend- 
ing disclosure information. 

So when we talk about $56,000 or any other figure, I would like to 
see it not only as a dollar amount, because that can sound very big, 
but I would like to see it as a percentage of corporate revenues and 
I would like to see it as a projected cost impact on the cost of the 

Mr. Ryter. Are you endorsing the basic democratic ideal of just 
asking the public whether they want this service and are they will- 
ing to pay this price for the service. 

Mr. SiLBERGELD. Ycs, but wc liave some other problems when you 
get down to talking about cost/benefit. It is very easy to measure 
costs. Those are direct. Many of the benefits are intangible. As has 
been said many times, what kind of dollar value do you put on a 
person's being able to run and play tennis instead of having to walk 
with a cane? 

Or a family not having a father or a mother still alive when the 
children are young. 

Mr. Ryter. But you do recognize the interface, the involvement, 
the requirement or the necessity for the consumer to OK this and 
say I want this service. 

Mr. SiLBERGELD. The problem is when you try to do a cost-bene- 
fit analysis, to reduce everything to dollars, you "frequently have left 
out most of the benefits and you have also decided that society can't 
make any social decisions by passing laws, that Congress is only to 
act in our own economic interest. 

So while they are useful, there are limitations on the use. I see 
limitations on the use of the cost-benefit analyses and only one of 
them has difficulty of measuring the benefits. 


Senator IMetcalf. My very distinguished predecessor in the United 
States Senate was James E. INIurray. 

I^lr. SiLBERCxELD. I worked at the FTC with Senator Murray's son. 

Senator IMetcalf. One of the things that he was concerned about 
and interested in was small business, as you remember. He was 
Chairman of the Small Business Committee. During World War IT, 
there was a blizzard, almost, of demands for governmental reports, 
from the Office of Price Administration, and so forth. So he was 
the author of the Federal Reports Act of 1942 because he was con- 
cerned about the costs of gathering all of this information. 

I think that was a concern that was justified. But we do have to 
act on information and we do have to send out the questionnaires. 
We do have to have information-gathering to allow us to pass regu- 
latory laws, tax laws, everything else that the Congress is involved 
in. , 

But what I was interested in was your discussion about the use- 
fulness of the information-gathering. We asked these people to 
provide us some information about passenger cars, to use your ex- 
ample. They lump a lot of other vehicles in there that makes it 
absolutely without any use or any value to us who are concerned 
about passenger cars "and not concerned about street sweepers or 
armored vehicles. 

]Mr. SiLBERGELD. I would sav that that 4-digit reporting cate- 
gory—which was not the FTC's but the 0:\IB's, because it writes the 
standardization manual— is a tribute to the lobbying power of the 
automobile manufacturers at 0MB. 

I realize that every time you split out another reporting category, 
you increase the cost" both to the reporting company and to the FTC. 

I think there are a few key industries in which the potential bene- 
fits of having specific information are so tremendous that you would 
just have a tremendous cost -benefit ratio if you decided it on that 

Senator Metcalf. We always get back to O^IG, who either de- 
stroys the value of the categories or refuses to allow the question- 

Thank you. 

Mr. SiLBERGELD. I would like some day to have the appropriate 
committee or subcommittees to hold hearings on the SIC manual 
product definitions and their effect upon Federal reporting pro- 
grams. I think that would be a most fruitful area of inquiry. 

Senator Metcalf. Thank you so much for coming. Thank you for 
your patience in waiting. Thank yt>u for the information you have 
"given us, your experience with working with the Consumers Union, 
and trying to use some of these information-gathering programs that 
w^e have established and haven't quite worked. 

INIr. SiiJiERGELD. Thank you. 

Senator Metcalf. We will be in recess now until Thursday, July 
24. We will resume at 10 o'clock in this room. 

[TVHiereupon, at 1 :30 p.m., the subcommittee recessed, to recon- 
vene at 10 a.m., Thursday, July 24, 1975.] 


THURSDAY, JULY 24, 1975 

U.S. Senate, 
Subcommittee on Reports, Accounting, and Management 

OF the Committee on Government Operations, 

\ Washington, D.C. 

The subcommittee met at 10 a.m., pursuant to recess, in Room 
1318, Dirksen Senate Office Building, Senator Lee Metcalf (chair- 
man of the subcommittee) presiding;. 

Present : Senator Metcalf. 

Also present: Vic Reinemer, staff director; E. Winslow Turner, 
chief counsel; Jeanne A. McNaughton, chief clerk; Lyle Ryter, 
minority counsel; John B. Chesson III, counsel, and Gerald Sturges, 
professional staff member. 

Senator Metcalf. The subcommittee will be in order. 

Today we resume hearings on information management. Our 
witnesses today have a formidable record of books and articles, 
dealing in part with information management. I hope they will cast 
modesty aside, and tell the subcommittee which of their reading 
materials should be on our bedside reading tables. Our witness list 
says we will hear from Mark Green, director, and Irene Till, econo- 
mist, of the Corporate Accountability Research Group. 

Neither of them are here yet, so w^e wall hear from our third 
witness. Professor Mark Xadel, from Cornell ITniversity. 

We are delighted to hear from you. You have a prepared state- 
ment. You may proceed in your own way. 


Mr. Nadel. Thank you very much, Mr. Chairman. I am pleased 
to be here testifying on this important subject. I do have a pre- 
pared statement and will try to summarize that as I go along. 

The collection and dissemination of information is a vital prob- 
lem, and particularly these days as we talk more and more about 
deregulation and the possibility of deregulation in certain areas 
now administered by the agencies, that it should be noted this Avill 
only work if there is a free flow of information, if even stiffer re- 
quirements for information are put upon industries now regulated. 

The free exchange of information as agencies currently dischai-ge 
their mandate is crucial for two reasons: First, free flow of infor- 



mation is essential if the agencies are to be lield acconntable for 
their actions. 

Secondly, information is essential if the a<rency is ojonig to get 
back more information. That is, when we talk about information 
flow, the agencies disseminate information, make their proposals 
known, and it is particularly important that these proposals be 
known as widely as possible so that moi-e information comes back 
to the agencies so they can discharge their responsibilities. 

While it is sometimes objected that posing more strenuous in- 
formation requirements on the agencies is costly and time-consum- 
ing, it should also be pointed out that such requirements might also 
enable the agencies to reach better decisions. 

There are two areas of information management I want to ad- 
dress myself to this morning. The first is the obligation, and I want 
to stress that word "obligation", of the agencies to solicit comments 
from the public. 

The second area is the substance of the information. So the first 
is who the target is and the second is what that target information 

At least since Sir Francis Bacon we have realized that knowledge 
is power. And nowhere is that more evident than in the regulatory 

The literature of law and political science is well documented by 
allegations of regulatory agencies captured by the industries they 
have set out to regulate. No small part of that is due to information. 

T would not set out a thesis that agencies are corrupt. Rather, 
when you get a one-sided information process, it is almost inevi- 
table that the kind of policies you get reflect that information 
process. So it is essential that that information process be balanced; 
thanks to the chairman himself and such measures as the Federal 
Advisory Committee Act and the Freedom of Information Act, 
regulatory actions are not nearly as clothed in secrecy as they used 
to be. The situation has certainly improved. 

I would like to suggest we need an even more basic reorientation 
of the information process and regulatory agencies. ^'Vliat I would 
suggest is just for agencies to sit back and wait for information to 
come in, is insufficient because it relegates the agencies to being 
simply neutral judges. We have gone away from the early concep- 
tion of the progressive era where agencies themselves were sup- 
posed to be aggressive promoters of the nublic interest. 

Rather, now they sit back and weigh the public interest on the 
one hand and the interest of industry on the other hand. If no in- 
formation is coming in pertinent to the wider public and consumer 
interest, then naturally more narrow interests will prevail. Sitting 
back and waiting for information to come in is not enough. The 
agencies have to reach out and grab it. 

I will give one example. On July 15, The New York Times car- 
ried a notice of an action pending by the Interstate Commerce 
Commission. The ICC proposed some regulations regarding buses, 
regulations pertaining to baggage, security, the condition' of bus 
stations, and so on. 

The point of this sounds good, but the notice appeared in just 


maybe 2 column inclies, buried on pa<Tc 20, of The Times. It is 
not really The Times' fault. Less lofty publications similarly bui-ied 
the story. 

The question is: Who is to blame? Certainly not The Times. Even 
if we could blame The Times or the media, there isn't aliything 
that Congress can really do about that. 

We do have a free press and you can't impose upon the free press 
a requirement to brandish the Federal Register on page one. 

I would argue that it is a positive obligation of the regulatory 
agencies themselves to make known to a much wider public such 
proposed rules. In this case certainly Greyhound and Contiiiental, 
Trailways, and other interests, paid close attention to the pro- 
posed rides, as they should, and they can respond. 

But how many bus riders respond ? How many members of the 
public would even know of this and other regulations? How do we 
surmount this problem? \ 

I think there are several rather simple ways. In the case of 
something like regulations pertaining to buses or other modes of 
transportation, it could be required, for example, that these pro- 
posed rules be posted in a prominent place in such transportation 
terminals. For 60 days during the notification period, with every 
bus ticket you could "require that a leaflet be given out listing the 
proposed regulations. 

Or for airline regulations, if the CAB is proposing certain 
changes in security, for baggage, for example, or reservation sys- 
tems, or relief from overbooking and so on, such proposed rules 
ought to be placed in the back seat compartment of all airplanes 
for a period of 60 days. It would be very simple. 

The point is, if the agencies were really serious about getting 
this information to the public, it could be 'gotten. The point is, it 
does not have to be gotten to the entire public. 

The problem is not to alert every household in the ITnited States 
of such regulations, but rather, what is most important, is to alert 
that portion of the public which is the consuming public, the con- 
sumers of the services. 

To some extent this is done in other areas, the areas other than 
ndemaking proceedings. It is meritorious that, even after much 
prodding, the ICC finally requires moving companies now that 
when the estimator comes around certain ICC information has to 
be given to the customer, and to prove that information has been 
given, the customer now must sign a form indicating receipt of 
such information. 

I would respectfully urge that this general principle could be 
applied also to rulemaking proceedings, and also to a wider range 
of nonrulemaking proceedings engaged in by the deregulatory 
agencies. That suggestion deals with reaching out at the target 

Senator Metcalf. I know in your statement you suggest that 
maybe the utilities should be included in some of the FTC regu- 
lations and so forth. 

It has been my observation that the utilities have so many propa- 
ganda materials, so much propaganda material in their envelopes. 

56-957 O - 75 


as antistrip mining pitches and so forth, that they could not— 
they would have to pay an increased postal rate to take care ot 
vour proposal. , . , ^- 

Mr. Nadel. Well, I would suggest, Senator, that rather than the 
propaganda which the taxpayer, the customer pays for anyway, it 
might be 

Senator Metcalf. If we could raise the question 

Mr. Nadel. Knowing of your interest in utilities, I should have 
mentioned that in my oral argument as well. Certainly I think- 
that some of the bulk could be taken out of those mailings by 
removing some of that propaganda and by putting m regulaory 

This, of course, would pertain more to the 

Senator Metcalf. It would at least go to the people involved and 
concerned about regulatory measures to be considered. 

Mr. Nadel. Yes. I think that the important principle here is to 
reach out to the relevant customer. 

In the case of utilities, of course, it is in fact all households. In 
the case of airline regulations, it is people that fly. 

I would like to emphasize something I put in the written state- 
ment, and that is that it is not necessary to reach everyone. Maybe 
more than half of the public flies. It is not necessary to reach half 
the public. The point is that over a period of 30 or 60 days you 
can reach a pretty representative sample of the traveling public, 
and you get a reasonably representative outpouring of views. 

You may not get an outpouring of views, but the point is the 
agency will have tried. If people don't want to respond, you can't 
force people to be good citizens, but you have to provide the oppor- 
tunity for them to exercise their rights and obligations as citizens. 
That is an important principle to apply to the regulatory process, 
no matter how much we ultimately deregulate. 

I would like to turn to the second area of information that I 
mentioned. The question of what information is solicited. Our regu- 
latory process works pretty much on the notion that it is sufficient 
to get submissions from interested parties, and by doing so you 
will get all the information you need to make an informed regu- 
latory decision. The idea being that the impact of the decisions will 
be best known by the interested parties themselves. And in many, 
and even most cases, this may be sufficient. 

But in some areas of regulation, particularly new technological 
areas, the whole area of telecommunications, the area of nuclear 
energy, the impacts may not be known, and certainly not known 
definitively, to the interested parties themselves. 

And in these areas the probleiTi is not only reaching out to 
parties who may be affected, but trying to find out what the effect 
will be, even beyond what the interested parties themselves may 

There may be unperceived effects, in other words. I have recently 
been involved in a group doing research on the FCC — the Federal 
Communications Commission. There are a couple of examples that 
show that even in a well-intended regulatory process, there have 
been problems. 


For example, recently there has exploded upon the FCC an enor- 
mous problem in citizens' band radio. From the last fiscal year to 
the current fiscal year, applications for citizens' band have quad- 
rupled, and the growth curve is just going up more and more 
rapidly. It is incredible. 

If you look at these curves, they just shoot straight up, in almost 
a straight vertical direction. There have been great problems be- 
yond merely the growth in applications. There have been problems 
of interference of unauthorized use. Enormous problems of unli- 
censed use. Transmitters, as all electronic devices, are getting 
cheaper and cheaper and more and more people can buy them. 
People are using them in an unauthorized fashion, interfering with 
radio, television, and other mobile systems. There is even a reported 
incident of someone receiving a citizen band message on their 
electric range, when their neighl^or had a particularly souped-up 

What does this have to do with information managem.ent? Very 
simply, that the FCC, when it promulgated the most relevant 
citizens' band regulations in 1958, did not foresee these problems. 
I would argue that a well-done technology assessment or political 
analysis should have enabled them to foresee some of these problems. 
Enough was known at that time, and certainly is known more re- 
cently in the areas of market analysis and the whole area of po- 
litical economy, to realize if you put out a unit that any citizen 
can use for $100 or less, that pretty soon you are going to have 
real problems. 

The point is it didn't occur to them. And they did not have the 
capacity to do that kind of analysis. And they still do not have 
that kind of capacity. 

Now they do have an Office of Plans and Policies, but it has a 
very small funding — a little more than $1 million for the current 
fiscal year. It is really inadequate to the task. 

Another example from the FCC, more recently in 1974, the FCC, 
in its docket 18262, approved a revolutionary new mobile telephone 
service, gave the approval to set aside the frequency for it and 
Bell Telephone may go ahead and set it up. 

It is a kind of service which would enable hundreds of thousands 
of people in every large city to have their own portable telephone. 
First in their cars, but ultimately a carryaround unit. 

This may sound like Dick Tracy science-fiction stuff, but the 
technology is there. It is a question of whether it is economically 
feasible. It is probably not far off. 

The problem with this is that no one asked the American people 
in any realistic or reasonable form whether they thought it would 
be a good idea to have a multibillion dollar investment, and even 
though the investment would come from the private sector, it is 
an investment of social resources. No one asked if they thought it 
would haA'e been a good idea to have everyone on an instant leash 
with a telephone hanging from their belt. The people may think 
it is a great idea. 

But the point is, no one asked. It was a properly done decision ; 
it took 7 years ; it wasn't hush-hush ; it wasn't rushed through by 


any means. However, there was very little opportunity for any kind 
of informed public debate. 

And also within the FCC, again, the considerations they looked 
at were only the considerations of the interested parties, of Bell, 
Motorola, of the competing land mobile services. The ultimate social 
outcome was not addressed. 

Well, the point I want to leave with you is that with a little 
more effort, information can be gathered and disseminated. Congress 
now has an Office of Technology Assessment, and getting more of 
that information on the congressional front is important. 

I would respectfully suggest that in certain areas agencies them- 
selves be required either to do in-house or contract for a technology 
assessment, and that assessment should be made part of the pro- 
posed rule in the Federal Kegister and disseminated in the ways I 
outlined earlier. 

In that way you can get a better idea of what the impacts may 
be. You can never know them definitively, but more information is 
certainly better. 

Second, you can have a better chance of alerting people who 
might be affected by the areas of new technology. 

In summary, regulatory agencies must be l^eyond being merely 
blank, passive slates for information. Agencies must go out and 
aggressively do all that is possible to solicit opinions about the 
need for and likely consequences of new administrative rules. 

The only alternatives are shortsighted measures and capture by 
those agencies that can dominate tlie flow of information to the 

That concludes my statement. 

Senator Metcalf. Thank you very much for your statement. I 
know that you skipped, and it will be printed in the record in its 

[The prepared statement of Mr. Nadel follows :] 

Prepared Statement of Mark V. Nadel, Assistant Professor or 
Government, Cornell T^niversity 

I am pleased to have the opportunity to testify on the problem of 
information management by independent regulatory commissions. 

The collection and dissemination of information is a problem of 
vital importance for the regulatory commissions and for the public. 
The free exchange of information by agencies is crucial for two 
reasons. First, a free flow of information from agencies to the 
public is essential if citizens arc to have any chance of holding- 
agencies accountable for their actions. Second, the effective dis- 
semination of information from the agency is essential if the 
regulatory agency itself is going to get back information it needs 
to discharge its own responsibilities in the public interest. Thus, 
while it has been suggested that greater public participation in 
regulatory agency decision making would increase the time and 
cost of decisions, it should also be noted that it might lead to 
better decisions as well. 

There are two related areas of information management that I 


want to discuss. The first is the obligation of the reguhitory agencies 
to elicit comments and participation from the public as well as 
from regulated businesses. Second is the substance of the information 
that agencies ought to get. These topics concern, respectively, the de- 
termination of who is aifected by regulatory decisions and what the 
impacts of those decisions are. 

At least since Sir Francis Bacon we have realized that knowledge 
is power and nowhere is that more apparent than in the regulatory 
process. The well known phenomenon of the regulatory agency 
"captured" by the industries it is supposed to regulate is usually 
due, in no small part, to the virtual monopoly of information held 
by major regulated industries. They not only possess infoi-mation 
needed by agencies, but they are also what political scientists call 
the most "attentive constituencies" of the agencies. That is, regu- 
lated industries pay attention to what agencies are doing and the 
public rarely knows what is goin^ on. It is easier to act in accord 
with the interests of those who are watching you than those who 
are not — and regulatory agencies often take this path of least re- 
sistance. Thus, in order to break this cycle it is imperative to bring 
about greater public involvement in agency decision making. 

Thanks to such measures as the Federal Advisory Committee 
Act and the Freedom of Information Act, regulatory actions are 
not nearly as cloistered and insulated as they once were. Positive 
strides have certainly been made, but there is still some distance 
to go. Before we settle for piecemeal efforts at better public in- 
formation programs, I would like to suggest that we really need 
a basic reorientation in the whole approach to the responsibilities 
of agencies in this regard. The definition of what constitutes an 
open as opposed to a closed door proceeding must be changed. The 
agencies should be something more than mere passive recipients of 

Just sitting back and waiting for information to come in rele- 
gates the agencies to, at best, being neutral judges balancing the 
interests of regulated industries on the one hand equally with the 
broader public and consumer interest on the other. Since they hear 
from the former and not from the latter, it is no wonder that the 
charge of capture by industry is often raised. 

Let us look at one example. On July 15, The Neto York Times 
carried a story noting that the Interstate Commerce Commission 
had proposed regulations designed to improve interstate bus service. 
The new rules related to schedule information, baggage security, 
standards for bus stations, and reserved seating. After decades of 
service ranging from substandard to terrible, one wonders what 
took the ICC so long — but better late than never. The point to be 
noted, however, is that this little item appeared on page 20. While 
the Times may not be the bus riders' favorite paper, it should be 
noted that the notice was similarly buried in less lofty publications 
as well. In accord with administrative law, the ICC solicited com- 
ments and will even go beyond that requirement by holding hear- 
ings in selected cities with interested consumers having a chance 
to testify. The plan of having regional hearings is certainly meri- 
torious — but how many consumers will know about them? In fact, 


consumer input will be, as usual, very minimal. That is the real 

crux of the problem. ., -i-. o ttti -i .^ 

And who is to blame? Who has the responsibility? While the 
Timss and other papers mio^ht be faulted for not ^ivm^ proposed 
rules more coveratre, it is not entirely reasonable to expect the 
newspapers to give prominent coverage to every administrative 
rule making procedure. In any case, there is nothing that Congress 
can do about that particular aspect of the problem. But the re- 
sponsibility ultimately rests with the regulatory agency. It is a 
positive responsibility of the agencies to notify the public of pro- 
posed rules that would affect them. 

Now this, at first glance, appears an impossible requirement. 
After all, we are all affected, at least tangentially, by most regula- 
tory actions. To alert all citizens to all rule making proceedings is 
admittedly an impossible and even futile task. But just because 
rule making affects everyone does not mean that you have to notify 
everyone in order to have meaningful participation. Rather, all an 
agency really needs to do is to target in on that segment of the 
public that "is most actively interested in a particular regulated 
activity at a particular time. 

For "the ICC proposal I mentioned before, the Commission should 
order that the proposal be posted at every major but terminal in 
the country, or ICC leaflets could be given with each ticket pur- 
chased. These could have a form for comments and a post-paid 
return envelope. Such a proposal would then reach the bus riding 
pi^iblic — those consumers who it is most important to contact. Or, 
for example, if the Civil Aeronautics Board has a proposed rule 
relating to air fares or service, the Board could order that it be 
included in the inflight airline magazines or put in seat back 
pockets as a separate leaflet. Similarly, pending Federal Power 
Commission rules could be included in electric company bills. 

These proposals do not apply only to proposed rules, but can 
also be applied to the complete run of activity regulated by the 
independent agencies. Indeed, some progress has already been made 
in this regard. At long last, the ICC requires that moving com- 
panies notifv prospective customers of their complaint records and 
settlement times as well as the movers' legal obligations in regard 
to pick up and delivery delays and so on. The FCC requires that 
broadcast licensees notify audiences of pending license renewal 
proceedings. This is all to the good, but the principle ought to be 
extended and the response of consumers ought to be greatly 

In short, the independent regulatory agencies, and other agencies 
using rule making procedures must go beyond merely "encourag- 
ing-' public participation and go out and actively solicit partici- 
pation. Furthermore, in the formal record of anv rule making 
proceeding the efforts taken to identify and notify the affected 
public should be stated. Inherent in this more aoorressive approach 
would also be reforms to make a more active citizen participation 
a reality. Along these lines, several measures have been extensively 
proposed elsewhere. For example, in 1972, the Administrative Con- 
ference of the ITnited States recommended that charges for tran- 


scripts be larg^ely absorbed by the afjencies themselves, that inineces- 
sary duplicate filino; requirements be avoided, and that assistance 
be provided in making information available. In its overall theme 
of shiftin<T the burden of information dissemination from the in- 
terested participant to the administrative agency, the Administra- 
tive Conference was certainly on the right track. Indeed, it is abso- 
lutely outrageous for an agency supposedly regulating in the public 
interest to charge the public full commercial rates for transcripts 
as has been the case traditionally. 

The idea of agencies as active solicitors of information is ad- 
dressed not only to the question of icho is solicited, but also con- 
cerns what information is solicited. From the standpoint of making 
sound policy, the problem of not soliciting the participation of a 
wide number of people is that potential consequences of regulatory 
decisions might not be known. T|ie underlying philosophy of our 
political system assumes that citizens, individually and collectively, 
are the best judges of their own interest; if you want to know the 
impacts of a decision just make sure that everyone who might be 
affected has a chance to make their views knoAvn. For most routine 
decisions, this principle is sufficient. However, there are decisions, 
particularly in areas involving new technological developments, 
where informed self interest is not sufficient. In these areas, the 
impacts are not immediately apparent. The problem in such a situa- 
tion is not that an agency hears only from regulated interests but 
that no one has the answers readily at hand. 

In doing research on some recent FCC decisions, I have en- 
countered some examples that illustrate this problem. For example, 
take the case of the Citizens Radio Service — the private two-way 
radios commonly known as citizens' band and readily available to 
all citizens for a varietv of personal and business purposes. In 
1958 the FCC, in Docket #11994, took some frequencies in the 
amateur radio band and reallocated them to citizens' band. Subse- 
quently, the FCC made some adjustments to the frequency assign- 
ments for citizens' band, but in 1969, the Commission denied peti- 
tions for rule making looking to a reallocation of frequencies from 
several other services to citizens' band. So far, all this is unexcep- 
tional. The problem, however, is that by all accounts chaos has 
begun to reign in the citizens' band area — the largest service 
administered by the Commission. Citizens' band has experienced 
phenomenal and unexpected growth because of the ease of entry 
into the service (obtaining a $20 permit which is rarely denied) 
and the proliferation of inexpensive radio devices ($40-$100 will 
put you in operation). Citizens' band applications received by the 
FCC increased by almost 200% in fiscal year 1975 from fiscal year 
1974. The FCC is absolutely swamped with a rapidlv accelerating 
rate of applications. There are more than two million licensees, 
but some estimates place the total number of actual users closer 
to seven million since a large number of CB operators never obtain 
permits from the FCC — and the chances of getting caught for this 
violation are very very slim. Although strict adherence to citizens' 
band FCC regulations would alleviate most problems, the system 
is now burdened with such problems as souped up transmitters 


causing significant interference with a variety of electronic devices 
including television, radio and even telephones and electric ranges. 
There is also indiscriminate calling, long range bouncing signals 
causing interference with distant CB transmissions, and use by 
truckers and others to evade laAv enforcement. 

What does all this have to do with information management? 
Simply that the record shows that the FCC did not anticipate any 
of these problems— problems that a reasonably thorough analysis 
should have foreseen. It appears that the only thing considered was 
the relative social utility of CB-related hobbies (radio directed 
model aircraft) and ham radio. The FCC simply lacked the capacity 
to assess the impact of its decision. The parties that would later 
be adversely affected by the citizens' band decision (such as some 
television viewers, business mobile radio users, and legitimate citi- 
zens' band users themselves) did not realize the impacts to come. 
That job should have been the Commission's. Yet, the FCC, apart 
from a small Plans and Policies office, had and has no capacity to 
gather and disseminate information of that kind. It should be em- 
phasized that this is not an example of a powerful industry simply 
overwhelming the FCC with data, such as often happens in rela- 
tionships between AT&T and the FCC. This is simply a case of a 
well intentioned decision leading to a present state of near chaos 
because of the lack of even the most basic information gathering- 
capacity. Citizens' band is a particularly good example of this 
problem because the problems that have arisen really should not 
have been too difficult to foresee if the FCC had the legislative 
mandate and capacity to assess the future impact of the frequency 

The basic problem is that the rule making procedures in the FCC 
and the other agencies require that the agencies only need to con- 
sider materials submitted by interested parties. This runs the risk 
of agencies either being overwhelmed by dominant industries or of 
crucial considerations which are neglected altogether. 

Another FCC decision in the mobile radio/telephone area illus- 
trates the informational problem in even greater depth. In Docket 
#18262, the FCC has reallocated a major chunk of the present 
UHF spectrum to land mol^ile communications, the major part of 
which is going to a revolutionai-y new mobile telephone system. In 
the rule making proceeding, whieli took almost seven years, hundreds 
of submissions were filed and all the major affected industries were 
heard. But the truly amazing thing is that apparently no one in 
the Commission seriously addressed the question of whether the 
American public would w-ant to underwrite a technology that ulti- 
mately promises to allow everyone to carry around his own tele- 
phone — and be located by the underlying computer system. Now, 
most Americans may be "thrilled by this notion^ — but the point is 
that they had little chance to know^ what was going on. Furthei-- 
luore, the potential implications of this decision (involving such 
issues as rights of privacy, transportation, and ambient radiation 
levels) were not considered. Indeed, even the relationship of this 
decision to the problem of citizens' band was not formally consid- 
ered. This is especially curious since the spectrum that was reallo- 


cated was also well suited for providino; additional citizens' band 
service. Thus citizens who mi^ht have had an interest in participat- 
ing had they known about the potential implications or citizens' 
band service, never knew that a closely related decision directly 
aflfecting their interests was being considered. 

I do not mean to suggest that the FCC did tilings in a surrepti- 
tious manner, or that the substance of the decision was not in the 
public interest. The point is that we still do not have a firm basis 
for knowing whether that decision was the best that could have 
been made because the relevant information does not exist. 

With a little bit more effort, that information can be gathered 
and can be disseminated. I would respectively suggest that agencies 
be required to do assessments of the broader impact of their de- 
cisions. Congress now has an Office of Technology Assessment^ to 
deal with major technological changes. Either through that office, 
through their own contracting,\ or through in-house analysis, 
agencies would vastly improve their informational base by assessing 
the impact of their proposed rules — before those rules became final- 
ized in an order. Furthermore, such an impact statement should 
itself be part of the proposed rule as printed in the Federal Register 
and other outlets such as I suggested previously. Tlius, the affected 
public would be in a far better position to know which federal 
actions post a potential impact. In effect, what I am proposing is 
a technology assessment statement somewhat like an environmental 
impact statement. The proposed regulatory impact statement, how- 
ever, would apply more to long range and even indirect social and 
economic impact and would deal with technologies normally not 
covered by current requirements — such as the immensely important 
area of computer and telecommunications technology. The agencies 
could then identify impacts and reach out to those affected by the 

In summary, regulatory agencies must go beyond being passive 
blank slates for information. Some rule making proceedings have 
such a great potential impact that agencies must go out and 
aggressively do all that is reasonably possible to solicit opinion 
about the "need for and likely consequences of new administrative 
I'ules — information that comes in equal measure from the public 
and from expert sources. The only alternatives are short-sighted 
measures and capture by those industries that can dominate the 
flow of information to policy makers. 

Senator Metcalf. You commented on the fact that the origin of 
these regulatory agencies as they^ were originally set out was that 
they — the agency itself and the staff — woidd represent the public 
interest. And now they have grown to be almost a court. One of 
these days some of these regulators, one or two of them, are going 
to put on a robe and a wig and really act as a court. 

The point, however, is that many of these big questions have be- 
come adversary cases. So, I have suggested, and others have sug- 
gested, that we recognize this change and we have a consumer 
counsel come in and repi-esent one side in that adversary position. 

As you point out, many of the people that come in, special 
groups, are represented by counsel. And we have an inadequate staff 
on the part of the regulators. 


So wouldn't yoii agree that we should now acknowledge that the 
big regulatory commissions are holding these hearings on an ad- 
versary basis rather than on the basis on which they were originally 
created ? 

Mr. Nadel. Yes, Senator. The problem is that the adversary basis 
now tends to be adversarial only between the affected industrv 
interests, and the consumer as an adversary in such proceedings is 
usually not recognized. 

I would certainly favor the public counsel proposal. In fact, the 
FCC itself toyed with the idea briefly, and for some reason dropped 
it around 1971. That would be an essential process. It is too bad 
that the concept of the agencies changed. Originally they were 
supposed to be very independent agencies that would lend their 
technical expertise. That has changed. So far the adversarial na- 
ture would probably have to be recognized now. 

Senator Metcalf. Well, some of that is the fault of the Con- 
gress, or the fault of the various legislators who appropriate monev 
for the State commissions. But we have not appropriated enough 
money to the commissions for them to have staff and auditors and 
counsel to do their jobs. A^Hioever is at fault, it has grown into 
that other direction of the Commission just sitting there, as I am 
sitting here todav, hearing testimony, and then making a decision, 
ratlier than sending the staff out, being militant and aggressive, in 
trying to do some regulating. 

Mr. Nadee. There is enough blame to apportion all around. And 
past presidents certainlv have their share, as long as the agencies 
are considered as repositories for people on the patronage list, and 
not agencies as a whole, but the top level, the commissioners, there 
is always going to be a maximum limit as to how good the regula- 
torv process can be. 

Senator Metcaef. Of course, we are here talking about infor- 
mation gathering. But there is a drive all over America, sponsored 
by the administration, to get rid of some of these regulatory 
agencies. Perhaps we should. But what would replace them ? Do 
you have any idea? 

Mr. Nadee. Well. I think you have to be careful in talkinof about 
Sfetting rid of regulatory agencies. There are differences between 
the agencies. I would go along with another witness this morninir. 
Mark Green. I would say there is a difference between agencies 
that regulate in health and safety and those that set rates. 

The crucial concept is one of choice. That is why information is 
so vital and, therefore, why the topic is important to today's hear- 
ings. There are some areas where all vou have to do is let the 
market prevail, as long as the consumer has information. 

For example, if we were to deregulate air fares and simplv let 
them be subject to the competitive process, at the same time there 
would still have to be consumer information given on such areas 
as overbookincfs, as baggage claims, and so on, information that 
will allow the consumer to make a choice when in fact there was 
a choice. 

If there are three airlines flvinp- across the country, give the con- 
sumer information on their records. 


There are some areas where fjivinp; information is not enough. 
Areas such as druo; safety, food safety. If you were to ^ive every 
consumer in the country reprints of 20 scientific monog:raphs of 
tests on food additives, that would do no ^ood, because the laymen 
simply cannot understand them. 

There is simply no realistic process of choice in those areas. 

In some fashion the market would shake it out, is what some 
conservative economists would say. But that is unacceptable in the 
kind of political system we have evolved. 

I do think some dere<?nlation is certainly in order. There is no 
reason now for such agencies as the ICC or the CAB to substitute 
their own determination of what the market requires for the con- 
sumer determination of what the market requires 

Also, deregulation would be a great step toward political account- 
ability, "^'ou have several less functions for which you want to hold 
the Government accountable. Perhaps we could concentrate our 
efforts more on the areas which are absolutely vital, such as occu- 
pational safety, health and safety, and so on. 

Senator Metcalf. Of course, we have regulatory agencies in the 
monopoly area, the Federal Power Commission and the Federal 
Communications Commission, and so forth, who don't have to 
undergo some of the competition that they have over in the airlines, 
for example. 

And how are we going to gather, if the regulatory commission 
couldn't do it, how are we going to gather the information so that 
the consumer will be adequately represented? It is a rather com- 
plex question on a nuclear energy plant, for example. What are 
the costs and where should they be distributed? 

Mr. Nadel. It is an enormously complex problem. One of the 
first problems is how you define a monopoly. For a long time A.T. 
& T. said everything thev did was a natural monopoly. AYhen they 
objected to the Carterphone interconnect decision, they said the 
equipment, the long lines, the local service, is a natural monopoly. 

They were eventually disillusioned of that notion. Electric service 
in a locality, telephone service in a locality, these are all natural 
monopolies. The question is how to get information. 

I think some redistribution of resources. Perhaps if you spent 
less Government resources setting the minute terms of service on 
trucking routes, on rail routes, on inland water routes, and so, 
minute things which are no business of the Government anymore 
and simply don't work, those resources could be transferred over to 
hire some'more economists and auditors for the Federal Communi- 
cations Commission to in fact see what the financial picture of 
A.T & T. is. 

I know enough about the Government, the budgeting process to 
know that may be an unlikely process. 

But the point is the resources could be mustered if the political 
will were there. 

There are too many resources of money and talented manpower 
going to essentially fruitless areas now, and not enough going into 
areas w^here you really do need government information that is not 
forthcoming,' information on what really should be a rate base of 
A.T. & T. Information on what our natural gas reserves really are. 

It is really outrageous that for so long as we were so totally 
dependent on the oil industry for information on reserves. The 
situation is slowly being rectified, but no small part of where we 
are today I think is due to relying on privately supplied infor- 

This is not to impugn on anyone's integrity either. When you ask 
a self-interested person to supply information which will have 
enormous bearing on their financial self interests, you are just not 
going to get good information, no way. 

So I think in those areas where you really need government in- 
formation, resources should be directed. It is well worth the cost. 

Senator Metcalf. Thank you. Counsel? 

Mr. Turner. Professor, you mentioned deregulation in the area 
of rates which might be effective. You indicated that the consumer 
should be the one to determine what he would pay for the service. 

Now, how would you protect the consumer from the service car- 
rier determining what the consumer is going to pay for the service 
in the deregulated scenario that you mentioned? 

Mr. Nadel. That is a real problem. At the very least this would, 
of course, have to be coupled with vigorous antitrust enforcement. 
But we have had competitive routes and we might be able to do 
something about overt-collusion, setting terms of those routes. 

On other areas, on less traveled routes, in the airline sector — 
Allegheny, New England Air and so on — there is a real problem. 
I will admit that. 

And the consumer might in fact end up paying more. 

Mr. Turner. Let's take the antitrust suggestion that you have 
made. It has been 10 years before the Department of Justice got 
to trial on the IBM case up in New York. And it may be 10 more 
years before they finish the trial. 

Mr. Nadel. At least. 

Mr. Turner. Now, when I was in the Antitrust Division in 1957, 
I was on the General Motors Bus Case. That case went on 11 
years before it was settled. Not tried. We never got to trial on the 
case. And I can go on and on and show examples of important anti- 
trust litigation projecting on through the years before the con- 
sumer is finally given any kind of relief. 

So, I am merely exploring — and we did explore it in the regu- 
latory reform hearings, last year, and I presume they will be ex- 
plored subsequently in the fall — how effective is the role of the 
Antitrust Division in protecting the consumer in a deregulated market. 

Maybe you could help us in finding that. Is this not a real prob- 
lem, and do you see any relief? 

Mr. Nadel. It is certainly a real problem, even with the best of 
the will in the antitrust process, it is, of course, slow. 

It, unfortunately, has not been without its partisan political 
overtones. The problem as I see it, sir, is if the regulatory process 
as presently constituted was working, Avas working Avell, and effi- 
ciently, there would be no question about deregulating. You simply 
would not deregulate because of the very problems that you men- 
tioned, the potential for collusion and slowness and inefficiency of 
the antitrust litigation process itself. 


But the point is that that process is not working. In fact, par- 
ticularly in the areas regulated by the Interstate Commerce Com- 
mission, you are getting great inefficiencies. Although I am not an 
economist, the economic literature I have read seems to be unani- 
mous in holding there are vast inefficiencies in the transportation 
regulatory process. 

Wliat i am suggesting is the alternative may not be optimal in 
the best of all possible worlds. You do have the potential for col- 
lusion and legal and illegal collusion. You still might be better off 
with certain kinds of deregulation in the right area. Particularly 
when you get down to minutia, and perhaps the real task analysis 
is to find out which areas you want to deregulate. In a free market 
you would be very hard pressed to get worse service from inter- 
state movers than you get now. 

I just can't see how the consumer would be worse off if you 
allowed free competition rates \with interstate movers, or you 
allowed free competition in rates on the major trunk-airline routes. 

The question is raised that the interstate routes subsidize the 
smaller cities. Maybe it is time to address the question of whether 
people flying from New York to Los Angeles should subsidize 
people flying between Washington and Ithaca. 

It may be great for me, but I am not sure it is an ethical 

The point is, the present system is not doing a very efficient job, 
particularly in areas of transportation. 

Mr. Turner. You will agree with me that the antitrust approach 
is not doing a very good job either? 

Mr. Nadel. I will. 

Mr. Turner. Somewhere in between you have to find a way to 
permit competition and yet protect the consumer from the highest 
rate or the lowest rate. You can put people out of business by 
charging low rates. 

Mr. Nadel. That is right. You would want to protect the people 
of the efficient, small business. You would not want predatory pric- 
ing practices that would later lead to higher rates. 

If you look at the economic health of much of the industry, 
dividing up the business has not exactly been a successful goal of 
the agencies. The airlines are not in very good financial shape, 
despite their protective regulation by the CAB. 

I need say nothing, of course, about rail service, particularly 
passenger rail service. 

Mr. Turner. I have no further -.questions, Mr. Chairman. 

Mr. Ryter. Professor, I enjoyed your testimony very much. Do 
you have any comment in the area of Congress' first attempt to 
collect information as a rider or amendment to the Alaskan pipeline 
bill last year? 

Mr. Nadel. Yes, I am. I think that was a very timely and im- 
portant contribution, and one which, of course, it should be added 
just barely passed as well. 

So when we talk about spreading the blame around, there was 
not exactly unanimous will in Congress to get that kind of infor- 
mation. But having passed it, it is quite good. One certainly hopes 
it survives the court challenges. 


Mr. Ryter. Are yoii familiar with any of the studies of the cost 
of this? 

Mr. Nadel. No, sir, I am not. , ., . p 

Mr. Eyter. I think we had testimony earher this week that ot 
the 228 companies that have complied thus far, the average cost 
has been something in the range of $56,000 per company. 

Mr. Nadel. Well, the question in such a cost breakdown is what 
they are attributing to the cost, and also the question of whether 
it is a one-time cost or a continuing cost. That is, there may be a 
fairly high cost in setting up the categorization of information 
and determining where their business fits in the three-digit code, 
but once that expense is undertaken, the cost of continual monitor- 
ing might be considerably lower. 

I think we would have to know whether it is a one-time cost or 
annual cost. 

Mr. Ryter. Do you have a basic familiarity with the objections 
raised by the corporations along the lines of requiring— asking 
how they are to allocate these costs, where they are to obtain in- 
formation that they didn't collect in this form at all? 

Mr. Nadel. Well* first of all, it is not altogether clear that they 
don't collect the information at all. They may not collect it in 
forms that are readily retrievable for governmental use, but there 
is a real question of how hard is it to get? 

Again, it reverts back to what they are counting in those cost 

Mr. Ryter. I assume you have some corporate accounting back- 
ground ? 

Mr. Nadel. No, no professional background. 

Mr, Ryter. One of the questions we asked the witness, the earlier 
witnesses this week, was where they w^oiild place the allocation of 
costs. Would it be distributed directly to the corporation, would the 
corporation be forced to assume the burden of this one-time startup 
and continuation of the cost, or should the taxpayer be asked to 
comment on it in one form or the other? Wliat was your feeling on 

Mr. Nadel. I would say it should be shared in the way these 
things are usually shared, as a deductible business expense. It is a 
cost of doing business. 

I would also comment that we talk about the cost. There is also 
some costs in not doing this as well, assuming the purposes of the 
legislation were valid, those purposes being to enable more efficient 
regulation and more efficient monitoring of some of the giant cor- 

So that there is some cost in not having information as well, costs 
which are allocated usually on the consumer and on society in 

Furthermore, these are not mom and pop stores we are talking 
about. These are all fairly large corporations; $50,000 or $60,000 
expenses for General Motors does not strike me as extremely odious, 
even given the lagging car sales. 

We are talking about companies with many divisions. It is very 
important for society to know of the lines of business and the rela- 
tive profit rates and so on. 


This is an important bit of public policy. These are not small 
companies without sufficient resources. 

Mr. Rtter. This leads me to my final question, and this has to do 
with consciousness being raised in f^eneral about the regulatory agen- 
cies about the effects of some of the decisions. You spoke about con- 
sumer consciousness and raising consciousness of the agencies by 
asking in some form or another or requiring a study to reveal 

This is constructive and I think that is why Congress has gone in 
the direction of having an Office of Technology. If you were — just 
posing a. hypothetical situation — if the consuming public today were 
asked as to whether or not they felt bands should be allocated, citizen 
bands, or certain frequencies for this purpose, the purpose of a port- 
able telephone, and in your own mind, I think, and other people's 
mind, there is a notion that this is a fE;ivolous enterprise 

Mr. Nadel. I did not mean to imply it is frivolous. I think it has 
a very useful function. 

My objection was that the problem with it should have been fore- 
seen so that those important functions could be discharged without 
difficulty. I think there is a place for it. 

INIr. Ryter. What do you think the consumer representative would 
say if he was to take a poll of the American public as to whether or 
not they wanted the portable telephone? 

]Mr. Nadel. Probably yes, but I think that — and I am not saying 
it should be no. I am "not saying the portable telephone or the 
citizens' band is frivolous. The portable telephone has a lot of very 
positive uses, in terms of crime prevention and safety. 

If people had phones in their cars, they could get in touch with 
emergency services faster. There are a lot of positive features. But 
negative features should not be assessed only. Positive features 
should be assessed also so we can find out ways to maximize them. 

This is in no way intended to suggest that the State should stifle 
technology. That is a common misunderstanding of technology 

While it is more sensational to focus on the negative, there are 
positive features as well. 

Mr. Rtit.r. I quite agree with you there are positive and negative 
aspects of technology assessment. Don't you feel that people strongly 
pushing technology assessment, feel the results of that assessment 
are going to cast extreme doubt on the allocation of costs in favor 
of some sort of social arbitrator mechanism, where a decision is 
made on behalf of the population. as a w^hole as to what areas new 
resources are going into? 

Mr. Nadel. I have some sympathy with that objection, but you 
must remember what I was talking about, and I am not sure how 
far I want to carry it beyond what I was talking about, were areas 
already under a regulatory mandate, areas where you need Govern- 
ment action to allow the technology, where in the case of portable 
telephones you had to make frequencies available. It wasn't just 
flying up there. They had to take away several UHF channels. As 
long as you have to take the Government action, you should at least 
view some of the impacts. 


Now, whether on other areas of technology currently not regu- 
lated we would want to do tliis, take tlie risk of social arbitrator, I 
am not sure. 

"^Vliile my sympathy is yes, I am very cognizant of the problems 
of trying to ram one person's tastes down another. But at the very 
least, I think the externalities of this, the effects on people that may 
not be consuming the technology, that these effects be widely known. 

If widespread citizens' band, for example, starts to cause wide- 
spread interference with television, then I would say yes, the in- 
terests of the 90 or 95 percent of the people who don't have citizens' 
band are going to have to prevail. Rut you need information to 
decide whose interests are going to prevail. 

Mr. Ryter. I appreciate your testimony. You have given us some 
A^ery suggestive suggestions that might lead to something further. 

Thank you very much. 

Senator Metcalf. Thank you very much for your appearance 
here, for your testimony, for your help. We are pleased to have your 
ideas on the record. 

Now we will go back to the first witness. Director Mark Green of 
the Corporate Accountability Research Group, and the group's 
economist, Irene Till. Miss Till was assistant to the Antitrust Sub- 
committee staff of Senator Hart and long was concerned and inter- 
ested in this particular area. So we are pleased to have you both 
with us. 

Mr. Turner. I would like to welcome Miss Till, since she and I 
worked together on the Antitrust Subcommittee imder Senator 
Estes Kefauver, and we both were involved, among other things, 
with the drug investigation and the legislation. 

Both of us worked directly with Dr. John Blair, who was, in my 
opinion, one of the finest economists we have ever had here on the 
staff of the Senate. 

I am delighted that we are together again and we can share your 

Senator Metcai.f. Thank you very much. I certainly concur with 
your accolade to Dr. Blair and Miss Till. If you have a prepared 
statement, go ahead. 


Mr. Greex. Thank you. This seems more of a reunion than testi- 

INIiss Till and myself will just summarize our prepared statement, 
which will be submitted in its entirety for the record. 

We appreciate the opportunity to speak here today on a subject 
which rarely makes the business pages, not to mention the front 
pages, as it certainly should — the subject of corporate disclosure. 

It is an area that Adam Smith himself posed as a cornerstone of 
competitive capitalism. He assumed, as many still assume, that an 
adequate information flow to the consumer is necessary for con- 
sumer sovereignty to work; is necessary for capital markets to ade- 


quately allocate the money in onr society ; and is necessary for in- 
vestors to know where to invest and what to avoid, for governments 
to know where there is monopoly power and where it does not ap- 

Yet, corporations have enacted a rendition of hide-and-seek when 
it comes to disclosure of important data. They have, in my view, 
deployed a service of spurious arguments to frustrate adequate dis- 
closure to the sectors I talked about — government, investor and 

First, many business spokesmen stretch the concept of trade 
secrets as far as some administrations have stressed the concept of 
national security, to cover what it was not intended to cover. Each 
have a legitimate aim if narrowly proscribed. 

I cannot understand, for example, why a profit and loss statement 
by subsidiaries should not be made public. Such information such as 
market share information is not a patent, a process, a customer list. 
Yet, often that talisman of "trade secrets" is invoked to shield cor- 
porations from external scrutiny. 

Second, corporations will frequently cite the fetching phrase, 
"right to privacy." It is especially important in a society with our 
Constitution that individual human beings, composed of blood and 
bones, not have their privacy invaded arbitrarily by government. 
But to apply tliat concept to corporate institutions, which are often 
private governments in terms of their impact on citizens, is an insult 
both to language and law. in my view. 

Instead, if wo would have a Freedom of Information Act. with 
exceptions, which apply to the government, we may want to think 
by analogy of a Freedom of Information Act, with exceptions, to 
apply to business. 

Secrecy in this area is both bad policy and bad democracy. 

In his first inaugural address, President Theodore Roosevelt said: 
"Artificial bodies "such as corporations, depending on statutory law 
for their existence or privileges, should be subject to proper goveni- 
ment. All supervision, and full and accurate information as to their 
operations, should be made public at reasonable levels." Three-quar- 
ters of a century later we are still struggling to achieve this very 
sensible goal. 

It is perhaps predictable that business entities at times would 
desire secrecy about their activities, but what is far more troubling 
is when government becomes an acquiescing agent for such business. 
Yet, it is true. Instead of government being a countervailing force 
to corporate secrecy, much Federal policy actively collaborates to 
keep from the public necessary information. And by government, 
include both Congress and the agencies. 

To take Congress, when the Supreme Court in 1961 ruled in the 
/St. Regis Paper case that the Federal Trade Commission could in- 
deed see Census Bureau manufacturing data by firm name. Con- 
gress quickly overruled the decision. 

In 1968. when the Bureau of Economics and the Federal Trade 
Commission proposed a firm study to analyze the extent of impact 
of mergers and intercorporate relations, the Congress again forbade 
it. The two appropriations committees would not appropriate money 

56-957 O - 75 


for it and even attached a rider to the bill that year forbidding that 
any money be spent that year on such a study. Said an economist 
involved : "Because of the influence of powerful and special interest 
groups and the problem of congressional appropriations which were 
responsible for the fact that what promised to be the most important 
and revealing study ever attempted concerning American business 
was never completed." 

Even today, INIr. Chairman, I understand at 2 o'clock there is an 
executive session at which Senator Hruska is going to introduce an 
amendment to end the line of business reporting now being at- 
tempted by the FTC. 

It is not an easy program to implement or define. It is being moved 
against legally by the potential, responding companies in courts in 
New York and Delaware, but it is an effort well worth taking. Yet, 
there is a risk now that history may repeat itself and it may be 
quashed legislatively, as it is attempting to go forward admin- 

Also, the Federal agencies, which Professor Nadel has so well 
described in previous testimony, have proven even less responsive 
than Congress. It is hardly original to say that the agencies can 
often be satellites of the regulatees, though I think it is true. 

For example, why has not the Civil Aeronautics Board ever made 
a serious or successful attempt to compel the Air Transport Associa- 
tion or ATA, the world cartel, to disclose more information about 
what they do and how they arrive at the prices they come to? "\^'liy 
have not the Federal Communications Commission insisted on both 
more investigation regarding A.T.&T. and disclosure of that infor- 
mation? Now finally decades later there is a serious study of 
A.T.&T., but it is founded on the guarantee of confidentiality, 
which is certainly not required by an agency which has its own 
subpoena power and can demand information. 

Why has not the Federal Trade Commission required disclosures 
of the kind that are finally now inadA^ertently coming out about 
domestic and foreign slush funds to domestic politicians and foreign 
agents for illegal purposes, which they can do under section 6 of 
their Act ? Such activities could be considered unfair trade practices 
since they competitively disadvantage an honest and ethical iDusiness- 
man, if he or she doesn't want to participate in such illegal activities. 

We all, of course, have our own personal experiences about how 
agencies can frustrate information requests. 

I recently was studying Washington law firms and asked the 
FCC for a survey they took of such firms, about whether they 
would provide pro bono service, that is, legal services for free, to 
community groups before the FCC. The Commission refused my 
request. Six years ago, when we began this study, we attempted to 
interview some attorneys at the Federal Trade Commission involv- 
ing the perennial Geritol case — a request I thought that was rather 
unextraordinary. Yet the full Commission voted 3 to 2 to reject our 
request. I don't want to understate what I think was the importance 
of that study, but I thought that a full Commission vote was a 
waste of Government manpower. Finally, a congressional hearing 
had to be convened and we eventually got access. 


For years the antitrust division of the Department of Justice 
would give secret clearances to business firms who solicited opinions, 
whether or not they would be sued based on a projected pattern of 
behavior, and we requested such information because we thought if 
entities outside the Justice Department were getting information, we 
should also have a right to that information. We were refused. We 
finally filed suit which provoked the Justice Department to make 
public their business review procedures and such letters. 

We all have such examples, those who work in the area of cor- 
porate accountability, and often they are quite depressing. They as 
well involve agencies utilizing confidentiality to again shield their 
regulatees from greater public disclosure, again collaborating to 
frustrate citizen access. 

Senator Metcalf. Mr. Green, I wonder if I may interrupt? 

For quite a while I have had a quprum call on the lights. I 
thought perhaps I could outwait them. Recently, however, when 
they make that motion to send the Sergeant at Arms around to 
arrest the Senators who have not reported, they have demanded a 
roll call. 

I suspect right now they didn't get a quorum this second time 
around, and I better go over and answer a roll call. 

[Brief recess.] 

Senator Metcalf. The subcommittee will resume. 

I appreciate your courtesy in allowing me to go over and vote. 
Now we will pick up where you left off, if you can find it. 

Mr. Green. At this time I would like to turn over the testimony to 
Irene Till, who will discuss the issues of confidentiality and aggre- 
gate reporting, especially as they relate to the SEC and the FTC. 

JNIiss Till. INIr. Chairman, one of the big problems, I think, is the 
fact that much of the data collected by the Federal Government is 
available only in the form of aggregate statistics. That is very fine 
if one has a' macroeconomic bent and is interested in the flow of 
investment and the general state of the economy and wants to make 
predictions about what is going to happen in the future with respect 
to employment and so forth. 

But if" one is interested in the microeconomics questions: what is 
the state of competition in the industry? Who are the leading firms? 
What is their sliare of the market? What are their price policies? 
Wliat are their profits on particular products? One, of course, is 
lost. You get none of that kind of information. 

Winn Turner referred a minute ago to the drug investigation. 
When we started we had nothing more than hunches as to what 
exists in the prescription drug history. We recognized the fact that 
there were a lot of companies selling the same products, so we de- 
duced that there must be an enormous amount of buying and selling 
behind the scenes. 

We also realized that patents must be very important in that 
industry. We read Value Line and other periodicals of that sort and 
we discovered that if you were a sensible investor, you would put 
money in the drug industry. It was not until the subpoenas were 
issued, and we received information on their bulk purchases and 
sales of drugs that we learned that most of the companies, of course, 


don't make the stuff they selh They buy the bulk and simply tablet 
it and bottle it. 

Senator INIetcalf. Wait a minute. 

Would you, to an uninformed layman, explain that statement? 
They don't make the materials they sell, the dru^ companies don't? 

Miss Till. No. Usually for almost every druo; there is only one 
or two, or at the most, three companies, that supply everybody in 
the country. And you buy the bulk, and, of course we discovered 
you could buy it extremely 

Senator IMetcalf. And then you run it through a machine and it 
comes out in tablets and so forth? 

]\Iiss Till. That is right. And you put a brand name on it and you 
can make a 10,000 percent or more profit on the prices charged. We, 
of course, could not get costs of production on this stuff. What we 
had to use was the price at which they purchased their bulk, added 
their tableting and bottling costs, and then looked at their prices as 
compared with these costs. 

Senator Metcalf. How can we find that out, who makes the bulk 
drugs and who sells them ? 

Miss Till. Well, if we had a good line of business reporting sys- 
tem, we would have that. 

Senator Metcalf. Well, we don't have. So how can we find out? 

Miss Till. How can we find it out now? 

Senator Metcalf. Yes. 

Miss Till. In the case of medicinal chemicals, it just happens 
that the Tariff Commission, now the International Trade Commis- 
sion, puts out an annual booklet on medicinal chemicals and at the 
back of it, for many, the actual manufacturers are listed.. At the 
time we were working on the drug industry for the Kefauver com- 
mittee back in 19,59, there was a good deal of information thus 

After tlie hearings started, however, there was less informa- 
tion published. There was also bulk prices that were published by 
the Oil, Paint, and Drug Reporter. As soon as the hearings began, 
many of those prices also disappeared from the publication. 

So as one inquires more deeply in an industry, the data often 
tend to disappear before your eyes. In addition, we also got copies 
of their patent licensing agreements which were very revealing. 
You may recall that Francis Brown, who had once been alien 
property custodian, managing the properties of seized German firms, 
left his post in the Government to become president of Schering 
when it was sold to U.S. investors. 

He was on the stand and the Senator was commenting upon the 
restrictive provisions in the licensing agreements of the Schering 

For example, the Schering licenses to its licensees, provided that 
no licensee could sell products in anything except in final packaged 
form, which meant the package the druggist got. This meant tliat 
no bulk would be available to the small companies the major sources 
of competition in the industry. 

Senator Metcalf. ^^Hiat would this involve? One hundred cap- 
sules ? 


Miss Till. No, it is in powder form in groat, big containers. 

Senator Metcalf. I understand. 

JNIiss Till. At the time we referred to the restrictive provisions. 
Francis Brown replied that no such restrictive provisions existed. 
It just happened that we had copies of the patent licensing agree- 
ments which had subpoenaed from his company and we read the 
section to him. He then modified his statement. 

As an industrial economist in the Antitrust Division and FTC and 
with the Senate Antitrust Subcommittee, I have also found that as 
soon as you begin to ask pertinent questions about the state of the 
competition in our industry, you are up against a blank wall. You 
can get a pretty good idea from an enormous amount of research 
work but little hard data. 

In many industries, as you probably know, there are marketing 
survey firms that collect the most detailed sales information which 
the companies buy at very high prices. It is awfully hard to get 
access to that. 

When I was in HEW a couple of years ago, we discovered that 
XIH had subscribed to what w\as then the Gosselin survey, which 
provides this type of information. It now has another name as a 
result of merger and is called the National Prescription Audit of 

We asked NIH for access to this information. Here we were in 
Social Security Administration at the time, asking a sister agency if 
we could look at the reports. They explained to us that they could 
not be made available to anyone because they had contracted with the 
seller to keep it confidential. 

Senator Metcalf. Now, are you saying that a Government agency 
subscribed to a report and could not reveal it to anybody? 

Miss Till. That is the position they took. They" took it for quite 
a long time until it became rather old material, and then reluctantly 
we were able to get access to it. 

Senator Metcalf. It was obsolescent? 

Miss Till. It was historical. 

Senator INIetcalf. Or obsolete. 

]\Iiss Till. Turning now to data collection by Government agen- 
cies, since the 1940's we have had a most highly centralized control 
over tlie questionnaires that go out. OlNTB's Standard Form 83, 
which GAO also uses now, asks the question. "Does your agency 
pledge confidentailty?" meaning. "Are you going to release any in- 
formation by company name?" To make it even clearer, there is a 
note appended that if the agency Ivas not made a very specific answer 
to confidentiality, it should supply an extra sheet detailing in full 
what the situation is. 

As a result, maintenance of confidentiality in Government agencies 
is just an accepted Avay of life. No one ever thinks of revealing the 
information by company name but only in aggregate statistics. And 
strangely enough, this exists even though the agency may have man- 
datory powers. 

For example, we were trying to get information out of the Tariff 
Commission 10 vears ago. The Tariff Commission told us solemnly 


they were gettinir those data thvoii^fh vohintai\v cooperation, and 
consequently, they would lose their sources of information if they 
divulired anything:. 

Xow they take the position there is a 1930 act upon which they 
rely for the collection of data. But they still promise in all their 
forms that there will be no sales information released by company. 

The Bureau of Klines informed us that they collect everythinir on 
a voluntary basis, and they promise confidentiality. Even where an 
ao-ency has mandatory powers with penalties provided in its act, it 
is still very reluctant. For example, you probably are aware that 
there is a tremendous battle efoine: on now with respect to the FTC's 
corporate pattern survey. This project, which has recently been sent 
over to the GAO. proposes collection of some information on a plant 
basis as well as other data. The FTC also proposes to release the 
information on a company basis after 4 or 5 years from publication. 

Census is takinir the position that this may jeopardize their col- 
lection of similar data which they irather on a mandatory basis. 
They argue that if there is massive refusal on the pai-t of corpora- 
tions to submit the data, they do not have the staff to handle en- 
forcement of the act. 

Actually, althouirh the financial penalty is verv sliirht. T think it 
is SlOO if you fail to file, there is also a 60-day jail sentence. 

Xow, whether Census feels that the latter is an unacceptable kind 
of penalty, it is currently raisinir a terrific furor, and T understand 
the GAO is extremely sympathetic to the Census position. 

Senator Mf.tcalf. Xow, wait a minute. There is a 60-day jail 
sentence. A whole lot of people from this administration, the Repub- 
lican administration, have been sentenced to jail. They <ro to a 
country club sort of resort in Pennsylvania. Ts there anyone that 
served any of these 60-day terms over at Lorton or in the District 
Jail or any of those places ? 

Miss Till. T have never heard of it. Senator, althouirh I erather if 
one is residine: in Allenwood, he is sflad to leave that prison, too. 

Senator ^Ietcalf. T suppose that people that say, "Well, I could 
do that sentence standin<r on my head," they can do it up there in 
Pennsylvania, but T don't know whether they could do it in some 
of the other District jails where different types of criminals are in- 

Miss Till. Well, T suppose that if businessmen were really sent to 
jail, we would have to construct a number of country clubs probably 
all over the country. [Lauirhter.] 

Seiuitor ^Ietcau. I have been concerned about the riffht of privacy. 
If you will remember in the omnibus crime control bill we provided 
vou had a no-knock provision, and drurr people, especially in en- 
forcement, broke into people's homes in the middle of tlie nieht. 
Sometimes they didn't know where they were supposed to go and 
broke into the wrong homes. 

But the corporations, it seems to me. have had a greater right of 
privacy than the individuals. We have given the corporations under 
the 14:th amendment, which was supposed to free the slaves and free 
the corporations, a right of privacy that we don't give to individuals. 
Isn't that correct ? 


Miss Till. I think it is true. And the stranp;e part of it is that tliey 
have been successful in getting away with it. 

I want to spend a few minutes now on the SEC itself. The SEC 
was pretty smart at the very outset. It has always taken the position 
that its questionnaires need not be submitted for clearance to the 
Bureau of the Budget or O^NIB. because they are engaged in enforce- 
ment activities. 

Xow. the FTC was not quite so adroit. There was a long period 
when even their enforcement questionnaires relating to violations of 
section 5 of the FTC Act or section T of the Clayton Act. were sub- 
mitted to 0MB, which spent weeks in considering them and often 
turned them down. SEC has avoided this probleni. There are only 
two or three questionnaires of a general sort which they actually 
submit to 0MB. and now to GAO under the Trans-Alaska Pipeline 
Act. \ 

They do submit copies of all questionnaires they are sending out 
and the agency has them on file. 

SEC now gets reports from over 10,000 companies, 10,000-plus. 

It should be noted, however, that not all of the big ones are in- 
cluded, because if they don't sell stock on the stock exchanges or 
over the counter, they don't have to report to SEC. And no one 
knows how many big privately held firms exist in the country. There 
are all kinds of guesses. 

The FTC for its quarterly financial reports gets data from some of 
these companies in its sample. But. of course, it is controlled also by 
the confidentiality rule, so that it can't even release the names. I am 
told that Deeriiig-Milliken, reportedly the largest textile manu- 
facturer in the world, is totally private. Timex is also. 

The large foreign drug firms are. There is now a tendency ap- 
parentlv for many companies to "go private," as the phrase is to go 
back to" a situation whei'e they have less than 300 shareholders. Under 
SEC rules, they can escape making any reports. 

The SEC. of course, has always taken the position that it is ex- 
clusively concerned with the disclosure in the interests of the 

And the investor, of course, is a very small segment of our society. 

According to the Department of Commerce, 10 percent of the 
families in the country get 71 percent of the dividend income. So 
far as most of the population is concerned, only a few are investors. 

Senator Metcalf. Miss Till, I am sorry, but we will have to recess 
at this time. 

[The prepared statement of ;Mar.k Green and Irene Till follows:] 

Prepared Statement or INIark Green and Irene Till, 
Corporate Accountability Research Group 

Many of America's great problems flash painfully onto our TV 
sets and collective consciousness each day. One dilemma, however, 
hardly makes it onto the business pages not to even mention the 
front" pages. It is the dilemma of corporate disclosures. Our giant 
corporations are private governments affecting the quality and cost 
of life for millions, yet they are often tighter than clams about their 


activities. This is both bad policy and bad democracy. In his first 
inaugural address. President Theodore Roosevelt posed the problem 
well. "Artificial bodies such as corporations depending on statutory 
law for their existence or privileges should be subject to proper 
governmental supervision, and full and accurate information as to 
their operations should be made public at reasonable levels." Three- 
quarters of a century later, we are still struggling to achieve this 
very sensible goal. 

Federal agencies collect vast amounts of detailed information from 
private corporations, but very little of it is made available to the 
public on a company basis. Most of the information is published in 
the form of aggregate statistics, effectively cloaking the identity and 
submissions of individual companies. Thus, though the public pays 
the bill for the gathering and collation of such information, it gains 
little knowledge about the specific activities of the corporations 

In most cases the government agency is committed to confidential 
treatment of the data even before the project gets off the ground. 
The Federal Reports Act of 1940 requires all questionnaires going to 
10 or more firms to be cleared through the Office of Management 
and Budget, or, under recent legislation, through the General Ac- 
counting Office. OlNIB's Standard Form 83, also now used by GAO, 
requires the agency to answer the question : "Does your agency pledge 
confidentiality?" The accompanying instruction emphasizes the im- 
portance of this question by stating that "if the nature and extent 
of confidentiality to be accorded inclividual returns is not clear from 
the form or transmittal letter, this should be explained in the Sup- 
porting Statement." 

As of March 31, 1975. OMB's computer system showed a total of 
2,149 questionnaires regularly going to 115 million business firms. 
According to that agency, confidentiality has been pledged for over 
98% of the applications for clearance. Tlie GAO has no computerized 
system, but processes its applications for clearance on a manual basis. 
Of the estimated 200 "repetitive" questionnaires (those sent out reg- 
ularly by agencies) since 1974, the GAO has no figures available on 
commitments to confidentiality. 

Confidentiality prevails whether or not the agency has manda- 
tory authority to collect the data. For example, the International 
Trade Commission ^ states on its forms sent to chemical firms that 
collection is authorized under Section 332 of the Tariff, as amended. 
Despite tliis asserted authority to compel the production of data, the 
Commission very solicitously and unnecessarily adds the following: 
"Information reported will not be published iii such a manner as to 
disclose the operations of individual producers. Persons who have 
access to individual company information are subject to penalties for 
unauthorized disclosure." 

The Commission is so scrupulous in this regard that even submitted 
data are not published where a firm has a monopoly of the product 
or where there is concentration by two or three companies. Its de- 
fense of needy monopolists is grounded in this inventive rationale: 

Formerly the Tariff Commission. 


a knowledgeable person might be able to estimate accurately the 
data submitted by the individual companies. 

In response to our inquiry, the Director of the U.S. Bureau of 
Mines stated in a letter of April 3, 1975 that all of its information 
is secured on a voluntary basis with a promise of confidentiality. Its 
questionnaire form entitled "Capacity of Petroleum Kefineries, for 
example, is prominently marked "INDIVIDUAL COMPANY 
DATA— CONFIDENTIAL and states: "Unless authorization is 
granted in the section above the signature, the data furnished in this 
report will be treated in confidence by the Department of Interior, 
except that they may be disclosed to Federal defense agencies, or to 
the Congress lipon official request for appropriate purposes." One 
can guess how many times this authorization occurs above the sig- 
natures of the officials of the major oil companies. 

Within the federal bureauracy, the Securities and Exchange Com- 
mission is undoubtedly the most important source of information on 
the specific operation of the mass of companies doing business in the 
U.S. Currently, there are 10,586 companies regularly reporting to the 

Though the SEC has successfully resisted clearance of its forms 
through the OMR, the Commission's data programs have fallen over 
other hurdles, some self-imposed. For example, the statutes under 
which the SEC operates make numerous references to the protection 
of the public as well as the protection of investors. Yet the SEC has 
seen fit to confine its protection to the latter— a group which largely 
includes the more affluent in our society. According to the Depart- 
ment of Commerce, in 1971 one percent of U.S. families — those with 
incomes in excess of $200,000 annually — accounted for 47 percent of 
dividend income. Ten percent — those with incomes over $50,000 — 
accounted for 71 percent of dividend income. 

The investment community has changed in recent years to accom- 
modate the growth of institutional investors in the stock market. 
SEC Commissioner A. A. Sommer, Jr. recently informed this Sub- 
committee that trading in securities on the New York Stock Ex- 
change "has become concentrated among institutional investors to 
the extent of 70 percent, where 10 years ago institutional activity 
amounted to about 30 percent." No doubt these institutions scrutinize 
with care the individual company data released by the SEC, but 
they also have available a variety of other sources of information, in- 
cluding paid professionals, to assist in the determination of invest- 
ment policy. Under these circumstances, it would seem that the SEC 
could expand its horizon to include its greater statutory function — 
the protection of the public. 

Consider, for example, its cavalier handling of line of business 
reporting. Here is an area of significant importance to the general 
public and to public agencies fighting the monopoly problem. Profits 
and losses by product line can provide impressive clues about the 
absence of competition or presence of oligopoly power, the exist- 
ence of administered pricing, cross-subsidization of products in con- 
glomerate operations, and the areas where other bottlenecks to 
competition exist. But instead of insisting on such disclosure, the 
SEC pallidly permits the firms to write their own tickets for their 


breakdowns of products. The result has been chaos with firms 
unsurprisingly, choosing product categories which work to conceal 
rather than to disclose information on their lines of business. 

A conglomerate like Coca-Cola, for example, has only one de- 
clared line of business-"the manufacture and sale of beverages. 
In fact they sit astride not only the soft drink industry but also 
frozen orange and other frozen juices, tea, coffee roasting and sales, 
and even water conversion systems. Pfizer, Inc., a major manu- 
facturer and supplier of prescription drugs, conceals information 
on this important line of products by lumping it ma category ot 
'^Phannaceutical and Heolth Products^ along with diagnostic 
products, bone and joint prostheses and dental products including 
"artificial teeth and dental supplies." Bulk antibiotics are included 
in ''Chemical Products,'' which also contain dairy and bre\yery 
specialty products as well as "food acidulants, food preservatives, 
antitoxidants, sequestrans, coagulants, cleaning and metal plating. 
There is no breakdown of data within these product categories. 

The dominant function of the SEC's collection of information is 
the detection of misrepresentation and fraud in the marketing of 
securities. Registered firms, those making public offerings of stock, 
must file reports ; all other companies, irrespective of their size and 
industry importance, whose stock is privately held and not offered 
to the public, do not report. Yet consumers buy their products and 
have an equal stake in both, irrespective of type of ownership. 
They are entitled to know who these companies are, the nature of 
their operations, the size and return on their investment in the 
conduct of their business. Nine years ago a Fortune article entitled 
"There's Plenty of Privacy Left in Private Enterprise'' suggested 
there were at least a score of private industrial firms which qualified 
for listing in the 500 largest corporations in this country. Such 
companies include Deering-Milliken, said to be the world's largest 
textile manufacturer, Timex and foreicrn-owned drug firms as Ciba, 
Hoffman-LaRoche, Geigy, Organon. But if you ask i\\Q SEC for 
such information, they neither know nor are even interested. 

And this particular device for achieving corporate secrecy ap- 
pears to be growing. Under SEC regulations for over-the-counter 
sales, firms with more than $1 million in assets and over 500 share- 
holders must submit financial information to the SEC. By reducing 
shareholders below 500, companies are relieved of this obligation. 
This growing trend — referred to by Commissioner Sommer as a 
"disquieting fad" — is achieved by "squeeze-out mergers," "reverse 
splits" of stock, or making tender offers for stock purchases slightly 
above depressed market prices. 

There are also deficiencies in SEC's administrative practices. 
Essential to a full and accurate reporting program is careful scru- 
tiny and analyses of the returns submitted. But the Commission 
frankly admits that its staff review is confined to an examination 
of whether, on its face, the information submitted appears inac- 
curate or misleading. If pressed further, agency officials acknowledge 
that little time is spent on the larjre, well-established corporations; 
that real effort is focused upon firms which liave been in trouble 
with the agency in the past or where there is reason to suspect the 


possibility of falsification. The SEC inquiry into United Brands, 
for example, was precipitated by the company president's suicide 
from his New York office window— hardly a method to rely upon 
for determining which companies should be scrutinized more care- 
fully. Illegal corporate campaign contributions did not surface 
with SEC's hurried search for discrepancies in reported informa- 
tion. It had to await the Watergate investigation. 

Nor has the SEC used its statutory powers to impose effective 
order in accounting practices. From the very beginning it has relied 
upon the accounting profession to do the job for it. It was not until 
1972 that the Council of the American Institute of Certified Public 
Accomitants issued a report recommending the formation of a 
Financial Accounting Standards Board to establish accounting 
principles. SEC endorsed this proposal and stated it would con- 
tinue its policy "looking to the private sector in establishing and 
improving accounting principles and standards.'' This has meant 
the continued use of the medley of "generally accepted accounting 
principles" which make for great disparity in accounting results. 
Whether the accounting principles currently in use are generally 
acceptable or not, the real need is for simplification and as much 
uniformity as can be reasonably achieved. But instead of meeting 
this problem directly, the SEC has ordered more footnote expla- 
nations accompanying financial statements. The net result has been 
a decorative embellishment of financial statements with complicated 
footnotes written, according to SEC Commissioner Sommer, "to 
obscure rather than illuminate the facts about the issues." 

There are also glaring omissions in reporting. The problem of 
beneficial ownership has been already studied by this subcommittee 
in considerable detail. Another loophole is SEC's permission to omit 
the names of subsidiaries if, in the aggregate, they would not con- 
stitute a "substantial subsidiary." And a substantial subsidiary 
is defined as one whose assets or operating revenues exceed 15 per- 
cent of those of the parent and its subsidiaries on a consolidated 
basis. As giant firms have increased in size, largely through mergers, 
especially the conglomerate movement in the late 1960s, this ex- 
emption has become significant. Exxon, for example, reported total 
sales and operating revenues of $45 billion in 1974; the 15 percent 
cut-off for reporting purposes amounts to nearly $7 billion. 

This secrecy applies especially to a company's foreign operations. 
The 10-K instructions specifically exempt, except for financial data, 
all reporting with respect to any foreign subsidiary "to the extent 
that the required disclosure would be detrimental to the registrant." 
Names of the foreign subsidiaries are to be filed on a confidential 
basis with the Commission, but the "significant subsidiary" rules can 
be invoked to nullify this requirement. 

SEC officials assert that little of the information received from 
corporations is accorded confidential treatment. Under its regula- 
tions, the Division of Corporation Finance has authority to "grant 
applications for confidential treatment of contract provisions." 
According to an associate director of that division, such applica- 
tions are granted only where the information submitted is imma- 


terial to the interests of investors. Access to the requests made and 
those granted or denied, however, are sealed from public view. 

Confidential treatment may also be accorded to "material other 
than contract provisions" where the Commission specifically ap- 
proves. Similarly, information or documents obtained in the course 
of an investigation are deemed confidential unless the Commission 
authorizes disclosure. The Ernst & Ernst report on Northrup, for 
example, w^as filed early in 1975 with the SEC. But disclosure had 
to wait until the release of the report by Senator Church's Multi- 
national Subcommittee in mid-June during hearings on the North- 
rup case. Finally, all information "classified by an appropriate 
department or agency of the United States in the interests of na- 
tional defense or foreign policy" is barred from disclosure. As you 
know, there has been frequent complaint of the over-classification 
of documents within the govei-nment; the SEC exercises no inde- 
pendent authority or oversight over such materials submitted by 
other agencies. 

Reporting firms are themselves granted great leeway in report- 
ing under 10-K instructions. For example, competitive conditions 
and the firm's own competitive position in the industry are to be 
disclosed "if known or reasonably available to the registrant." "If 
a material part of the business is dependent upon a single customer 
or customers" that should be revealed. But if it involves contractual 
arrangements, the chances are that it is submitted under the pro- 
vision for confidential treatment. Such discretionary language as 
"known or reasonably available" and "where material to an under- 
standing of the registrant's business" is scattered throughout the 
10-K instructions, and provides escape hatches in the event that 
the agency goes beyond a superficial scrutiny of the return and 
makes intensive inquiry into the affairs of the companv. In general, 
an essential ingredient of a good questionnaire is clearcut speci- 
ficity of the information requested with little opportunitv for dis- 
cretion to be exercised by the respondent. 

The Federal Trade Commission raises a different set of problems. 
Here is an agency set up in 1915 for the deliberate purpose of 
securing corporate disclosure. Section 6 of the FTC Act empowers 
it to "investigate the organization, business, conduct, practices and 
management" of private corporations and report its findings to the 
public. In its early days the Commission ably fulfilled this func- 
tion, but it was soon crippled by adverse court decisions, poor 
appointments of commissioners, and the numbing consequence of a 
foliating bureaucracy. 

Not the least of its problems has been the requirement, since the 
passage of the Federal Reports Act, of clearance of its economic 
inquiries through 0MB, and previously the Bureau of the Budget. 

An important function of the FTC'has been the publication of 
the Quarterly Financial Report providing aggregate data — by in- 
dustries—on sales, profits per dollar of sales, profits on stockhold- 
ers' equity and other financial information. Until a few years ago 
the SEC collected the data on registered firms while FTC collected 
for nonregistered companies. The SEC, however, uninterested in 


the project, did nothing to enforce responses from some of the 
largest registered companies. After prolonged negotiation, the en- 
tire function was lodged in the P'TC. None of this company data, 
of course, has ever been made public; it has been governed by a 
commitment to confidentiality. Even the legal and economic staff of 
the Commission itself, needing the data for case^york and economic 
reports, have been marred from access. 

As a result, efforts were made within the Commission to insti- 
tute a line of business program outside of the QFR work. The first 
major attempt was made in the early sixties, and immediately ran 
into trouble with OMB's predecessor, the Bureau of the Budget. 
The agency's Business Advisory Council, to which it was submit- 
ted for advice, organized a national protest by business. Not only 
did the Commission fail to secure clearance; the Congress struck 
out all funds for this purpose from -its budget, and ordered the 
agency to use no available money it might have for this work. 

By the late 1960's, the race toward industry conglomeration was 
rapidly eroding the utility of the aggregate statistics published in 
the QFR. While firms were still specialized in their operations, the 
industry data were useful. But firms had diversified their opera- 
tions across a number of industries. In the QFR reports, the entire 
activities of the conglomerate firm have been assigned to the in- 
dustry category where its largest sales occur; in some instances 
such sales were only ten or fifteen percent of total sales. Increas- 
ingly, much of the published data became of little value. 

This fact, plus the SEC's feeble accomplishment on product re- 
porting, spurred the FTC's current effort to revive the line of 
business program. In order to secure clearance from OMB. then 
in command, a commitment to confidentiality had to be made — a 
concession which settled only one of the Commission's growing 
number of problems. The OMB's Business Advisory Council again 
moved quickly to thwart the effort. Hearings were held and repre- 
sentatives of the country's largest firms argued, among other things, 
that such a program would damage our "basic competitive sys- 
tem," that it was a first step "to completely regulate the economy," 
that information on market shares constitutes "trade secrets," that 
companies don't have such information anyhow, and so on. One 
argument related to the possibility of leaks within the FTC of the 
information collected. In defensive response, the Commission then 
committed itself to insulate the data from all parts of itself except 
for the Division of Financial Reports, which liandled the data. 

With the passage of the rider to the Trans-Alaska Pipeline Act 
in 1973, supervision shifted from OMB to GAO. In March 1974 the 
FTC submitted its project to. GAO which at that time lacked — 
and still lacks, according to an FTC official — a staff competent to 
evaluate the intricate and complex type of economic survey this 
represented. Reluctantly it was cleared by GAO with a statement 
"recognizing that the initial information will be reliable and may 
be misleading." Several of the country's leading firms then moved 
to their next line of resistance — resort to the courts. Alcoa, GE. 
GM, Goodrich, International Paper, Owens-Illinois and Union 


Carbide are involved in the New York case where the district court 
refused to enjoin the Commission. In Delaware, where the decision 
favored the plaintiffs in a comparable case, the companies included 
A. O. Smith, Inland Steel, Northwest Industries, Oscar Mayer, 
Merck, Goodyear, and Thomas J. Lipton. As you are undoubtedly 
aware, much of the enerfjies of the Commission are absorbed with 
this litigation. 

According to recent count, about 225 companies — out of a total 
of 345 receiving the line of business form — have filed returns. It is 
particularly unfortunate that the confidentiality commitment pre- 
vents their examination by the regular economic and legal staff of 
the Commission. Such examination would serve three purposes: (1) 
their knowledge and skills could be utilized for careful scrutiny 
of the submissions for discrepancies and errors; (2) access would 
increase their own knowledge of corporations and enhance their 
usefulness in the Commission, and (3) their input would be helpful 
in improving the kinds of questions asked in a complicated endeavor 
of this kind. 

Instead, what has happened? The data now go directly to the 
Division of Financial Reports for quick scanning and then are 
fed into the computer. The great value of the survey — in providing 
detailed line of business information by individual companies — 
remains cloaked in secrecy. 

No doubt there is valid ground for criticism of the survey itself; 
the agency itself recognizes this by revisions in its proposed form 
for the collection of the 1974 data. The point is that one learns in 
the doing; increasing knowledare will improve the kinds and frame 
of the questions asked. Rut the clearance process l:)y an outside 
agency discourages this kind of approach. 

It does not seem possible for a supervisory agency to avoid policv 
making. Under the new law, GAO cannot, as did 0MB, second- 
guess the FTC's determination that the information sought it rea- 
sonably necessary in the performance of its duties. Nor can it delay 
interminably the rendering of an opinion. 

Still, there are obstacles it can erect. Take, for example, the revival 
of the Corporate Pattern Survey submitted by FTC to the GAO 
in early 1975. This survey involves details on ownership of the 
1000 largest corporations and value of shipments by product class. 
The FTC proposes the collection of such data every' five years, with 
publication of the individual company data four years later. By this 
time the information is basically historical but useful for assessment 
of changes that have occurred. This program is in a state of sus- 
pension at the moment. The Bureau of the Census contends that it 
would imperil its own data collection. Though the Census program 
is mandatory, it argues that it lacks the staff for enforcement in the 
event of mass refusal by corporations to supply data. The GAO is 
impressed Avith this argument and has expressed great reservations 
as to whether FTC should proceed. 

The Census position is a little difficult to understand. It is not at 
all certain that a corporate sit-down strike will occur. If it should, a 
strong-willed Census should be able to cope with the problem. Its 


law provides minimum pecuniary penalties ($100 per violation), but 
also a jail sentence for 60 days. If imagined disasters can be used to 
stifle corporate disclosure — with GAO playing a leading role in the 
pressuring game — then corporate disclosure becomes the exception 
rather than the rule. A rescue operation for the FTC program may 
well depend upon the interest and expressed concern of members of 
Congress. It would be unfortunate if this case should set a new prece- 
dent within the Government for the presentation of corporate 

[Wliereupon, at 11 :45 a.m., the subcommittee recessed, subject to 
the call of the Chair.] 





Government Operations Subcommittee 
On Reports , Accounting & Management 
161 Russell — 

Senate Office Buildina 
Washington, D.C. 20510 

Dear Committee Members and Staff 

In Senator Metcalf s remarks of June 10, he sets 
out a dozen specific questions which the information management 
hearings will attempt to answer. Three specific 
questions are of special concern to me as a lawyer 
representing the Kansas Civil Liberties Union's efforts 
in upcoming hearings involving the Wolf Creek nuclear 
power generator which has been applied for jointly 
by the Kansas Gas & Electric Company of Wichita and 
the Kansas City Power & Light Company. 

The three questions which Senator Metcalf stated 
are reproduced below as follows: 

Third. Is the information available 
only on an aggregated industry basis? 
If so, how can an agency and the users 
ascertain that aggregates and averages 
are correct if they do not see indivi- 
dual company data on which the 
aggregate information is based? 

Fifty. How often is the basic data 
regarding company operations, management, 
assets, liabilities, capitalization, and 
control collected? Should information 
now collected only as a part of occasional 
"benchmark surveys" be availa±>le on a 
more regular basis? 

Ninth. What do the agencies do to help 
guide the public to information in their 
files? How can th^ose procedures — or 
publications — be improved? Is inaccurate 
or outdated data flagged? 



To begin with, the following comments are not 
intended to be derogatory of the Nuclear Regulatory 
Commission because that body has only recently come 
into its own, and can hardly be given fair treatment 
if judged by previous actions of the Atomic Energy 
Commission. Nonetheless, several things have already 
been noted by members of the public who are trying 
to learn what is involved in the nuclear power plant 
proposals and who are trying to keep an open mind as 
to the merits of the application. For the record, 
the Kansas Civil Liberties Union has never and has 
no intention of ever taking a position for or against 
nuclear power per se. Our presence in these hearings 
is designed only to make certain that the principals of 
due process are followed. 

However, it struck me initially that it is hard 
for due process to exist in a situation where notice 
of proposed hearings is issued to the public almost 
a year before the draft environmental impact statement 
is ever filed. The problem principally is that if one 
does not choose to intervene within a short period 
after publication of the notice, that party has no right 
to intervene later when the full information that might 
be obtained from the environmental impact statement 
becomes available. This forces parties who might want 
to litigate to make the choice of intervening now and 
waiting for the later environmental impact statement or 
hoping that the environmental impact statement will 
answer all of one's concerns so that intervention is 
unnecessary. That should not be the way that a 
regulatory agency is allowed to proceed. 

Furthermore, the environmental impact statement 
should be filed at the same time as the notice of 
public hearings in order to give members of the public 
an initial working paper for their guidance in assessing 
the information collected by the agency. 

An example of the need for information that should be 
contained in an environmental impact statement 
involves question number Five set forth by Senator Metcalf. 
The "basic data regarding company operations" in the 
nuclear fuel management of the proposed generating plant 
certainly includes knowing whether or not the applicants 
will actually have an adequate supply of uraniiom. Some 
people have stated to me that the current stockpiles of 
uranium are not likely to meet the demands of the 


fifty-five nuclear generating plants that are currently 
in use, and that should all of the proposed plants be 
built, bringing the total number up to about 2 80, it 
will be impossible to meet the uranium requirements of 
each and every one of those operations. Therefore, it 
would be important for the public to know something about 
the contracts which the applicants have signed with 
companies which might or might not be in a position to 
supply the necessary uranium. Yet, in the specific 
case involving the proposed Wolf Creek generator, those 
who have tried to discover these contracts have been 
told that it is a matter of only private concern and not 
properly to be considered by the NRC. Whether the NRC 
itself will sustain that position is unknown at the 
present, but guidance from the Congress in support of 
the public's right to know whethex or not the proposed 
contracts are actually enforceable from a practical 
standpoint would no doubt assist the Commission 
considerably and would point it in the direction of 
coming down on the public's side of the question. 

Furthermore, the amount of uranium available to the 
industry in general and the amount of capitalization 
of utilities in general cannot be depended upon to reflect 
the specific ability of applicants in Nuclear Regulatory 
Commission proceedings. Maybe Consolidated Edison has 
good contracts and an ample cash flow in financial reserves; 
but the question is, does the Kansas Gas & Electric Company 
have these qualities. The Commission itself and the public 
must be able to obtain the individual company data in the 
proceedings so that we can make an informed decision as 
to whether or not to intervene and so that the Commission 
itself can make the best decision on whether or not to 
grant the application. 

The question about how the public can get the 
necessary information from an agency's files cries for 
a wise answer. For years, the Atomic Energy Commission 
kept the public from learning about nuclear power and 
especially, nuclear problems. Anything that did not cast 
the technology in its best light was suppressed. Therefore, 
not only does the Nuclear Regulatory Commission have the 
usual problem of communicating large amounts of technical 
data gathered from diverse sources to its own personnel 
as well as the public, it has a rather bad history of 
doing exactly the opposite which must be overcome. For 
this reason, the Sxobcommittee probably should go out of 
its way to develop an affirmative action program for the 



NRC to make sure that Senator Metcalf s formulation of 
question number Nine is answered by responsive legislation^^ 
that gives clear guidance to the NRC. 

Each of the additional nine questions have ramifica- 
tions on the problems of nuclear regulation and nuclear 
proliferation, but sufficient answers to the three points 
I have raised would go a long way toward overcoming many 
of the bad effects of nearly three decades which have 
dressed atomic energy and nuclear technology in Madison 
Avenue packaging techniques. A full and complete legisla- 
tive dealing with these three questions will help ensure 
that the other nine are answered by the same standard of 
legislative diligence. It is my hope that all of the 
senators approach these grave questions which Senator 
Metcalf has raised with both open minds and a full 
understanding of the awesome ramifications of nuclear 
technology so that -our children's children will be able 
to pursue the good life within the framework of our 
constitution and those absolute values, based on humanism, 
which has been the beacon for eight generations of 

Very truly, yours 

/Jim Lawing 

July 11, 1975 // 


The Concentration of 
Economic Power 

by Marklcy Roberts 



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Giant corporations dominate the American economy 
and the decisions of big business — on U.S. operations 
and on foreign operations — vitally affect the nation's 
prosperity and the jobs and incomes of millions of 

Far too often there is no public accountability for 
these important decisions — no way for workers, con- 
sumers, regulatory agencies or even the elected pub- 
lic policymakers to get essential information on the 
structure and operations of big business. 

Unfortunately, in their public financial statements. 
U.S. corporations often conceal far more than they 
reveal. Too often, basic cost, price, profit and invest- 
ment data are hidden. There is little detailed infor- 
mation on the structure, ownership, and operations of 
America's giant business and financial institutions and 
their interlocking relationships. These economic giants 
far too often can avoid effective public regulation be- 
cause Congress, government regulatory agencies and 
the general public — including representatives of con- 
sumers and workers — simply cannot get adequate de- 
tailed information. 

nomiU 1,1 the AfL-ClO Depart- 

The Structure and operations of the U.S. economy 
are enormous. With a 1975 population of about 215 
million people, the United States has a labor force of 
95 million, including about 8 million people officially 
unemployed and 2 million men and women in the 
armed forces. There are 81 million workers in non- 
agricultural industries, including 14 million in federal, 
state and local government, and 3.5 million workers 
in agriculture. 

Manufacturing, with 19 million workers, is the big- 
gest source of private, non-agricultural employment. 
Wholesale and retail trade provides 17 million jobs, 
and services 14 million jobs. Contract construction 
accounts for about 4 million jobs; finance, insurance, 
and real estate provide another 4 million, with just 
less than 700,000 employed in mining. 

Union membership is strong among workers in 
manufacturing, contract construction, mining, trans- 
portationj communications and government. There is 
^ relatively low unionization in the service industries, 
wholesale and retail trade, agriculture and finance, 
insurance and real estate. 

Big business is a small part of the total U.S. busi- 
ness population. The nation has more than 1 1 million 



firms — 1.5 million business corporations, 6 million 
independently owned and operated proprietorships 
and 800,000 partnersliips, plus another 3 million firms 
engaged in agriculture, forestry and fisheries. 

Corporations get about 85 percent of all business 
receipts, so it's obvious that most proprietorships and 
partnerships are "small business." So are most corpo- 
rations. About 85 percent of all business firms had 
receipts of less than $100,000 in 1967 — three-fourths 
got less than $50,000 and half got less than $10,000. 

The overwhelming majority of the 1 1 million 
firms — 97 percent — are "small business," with busi- 
ness receipts under $1 million a year, according to a 
recent Senate Small Business Committee report. The 
biggest "small business" would employ no more than 
60 workers, the report says, and most have fewer — 
only one or two hired workers or even none. There 
are only 300,000 "large firms" with business receipts 
greater than $1 million. 

More than half of the 1 1 million business firms are 
in services or retail trade — including very small busi- 
ness firms like beauty parlors or "mom and pop" 
stores. Another I million firms are in finance, insur- 
ance, and real estate. Contract construction has had 
more than 800,000 firms in boom times, but during 
a recession many of them simply go out of business. 

The nation's 400,000 manufacturing firms account 
for less than 4 percent of all business enterprises, but 
this 4 percent accounts for 40 percent of all business 
receipts. And these manufacturing firms have a very 
high degree of concentration. The Federal Trade 
Commission reports 3,300 manufacturing corporations 
with assets of $10 million or more, including 730 cor- 
porations with assets of $100 million or more and 
120 corporations with assets of $1 billion or more. 

A very small number of manufacturing corpora- 
tions—the top 100 — get about 50 percent of all prof- 
its in manufacturing. The top 200 get 70 percent and 
the top 500 get 80 percent. 

These top "Fortune 500" industrial corporations are 
the ones most people think of when discussing eco- 
nomic concentration. These corporate giants had total 
1973 assets of more than $500 billion, sales of more 
than $600 billion, profits of almost $40 billion and 
employed more than 15 million workers, more than 
75 percent of all workers in manufacturing. Eight 
of the world's 10 biggest industrial companies are 
U.S. -based multinational corporations. 

In addition to the top 500 industrial giants — led by 
General Motors, Exxon and Ford — Fortune Magazine 
also lists the top 50 companies in banking, life insur- 
ance, diversified financial operations, retailing, trans- 
portation, and utilities — another 300 business enter- 

The top 50 banks— led by Bank of America, First 
National City Bank, and Chase Manhattan — had 1973 
assets of $460 billion, after-tax income of $2.5 bil- 
lion, and employed more than 430,000 workers. 

Of the 14,000 private commercial banks in the 
nation, about 3,000 are affiliated with bank-holding 

companies. The 10 biggest banks hold 25 percent of 
all bank assets and the 100 biggest banks hold more 
than 50 percent of all bank assets. A 1968 staff report 
by the House Banking Committee revealed that the 
49 biggest banks hold 5 percent leverage control in 
more than 5,000 major corporations and hold 8,000 
interlocking directorships in more than 6,500 major 
business corporations. These banks also control bil- 
lions in trust fund dollars, including pension funds. 

There is a very high degree of "concentration of 
stockholdings in a whole range of companies — en- 
ergy, manufacturing, transportation, communications 
and retail trade — among a handful of New York 
bank trust departments," according to a 1973 report 
of the Senate Government Operations Committee. 
And the concentration of economic power is still 
further increased by these big banks owning large 
blocks of stock in each other. 

The top 50 life insurance companies — led by Pru- 
dential, Metropolitan of New York, and Equitable — 
had assets of $205 billion, net income of $1 billion 
and employed 410,000 workers. The top 50 diversi- 
fied financial companies had assets of $125 billion, 
net income of $2 billion, and employed 350,000 

The top 50 retailing companies — led by Sears Roe- 
buck, Safeway and A & P — had assets of $45 billion, 
net income of $2 billion, and employed 2.7 million 

The top 50 transportation companies — led by 
United Air Lines, Penn Central and Trans World 
Airlines — had assets of $48 billion, net income of 
$860 million, and employed 1 million workers. Penn 
Central, $4 billion in assets and $2 billion in oper- 
ating revenues, was running a $170 million loss in 

The top 50 utilities — led by American Telephone & 
Telegraph, Consolidated Edison of New York, and 
Pacific Gas & Electric — had 1973 assets of $180 bil- 
lion, net incomes of $7 billion, and employed 1.3 
million workers. 

In addition to "aggregate concentration" of corpo- 
rate assets, corporate profits and employment by cor- 
porate giants, the U.S. economy is marked also by a 
high degree of "market concentration" in many indus- 
tries — a concentration of production, shipments and 
sales of the top four companies in a particular indus- 
try. This is what economists call "oligopoly" or com- 
petition among the few. This kind of "competition" 
often results in anti-competitive "administered pric- 
ing" with joint action, sometimes in violation of the 
antitrust laws, and almost always results in raising 
prices above competitive levels. The Federal Trade 
Commission has estimated that U.S. consumers pay 
as much as an extra $80 to $100 billion each year — 
out of total purchases of $900 billion — in higher 
prices because of this monopoly power. 

Highly concentrated industries — where the top four 
companies produce 50 percent or more of total indus- 
try output — account for one-third of total manufac- 


How The Four Biggest Firms Dominate Various Industry Groups 


■ Percent of 1967 Industry Output by 4 Largest Firms 
~ 50 100 


^\ ^, ^, ^^* ^, ^, ^, ^, ; ^ 

Distilled Liquor 

i iiiiiiiii 


i i i i i i i P ~ r 

Glass Containers 

A A A A A A 

Food Flavoring 

4 4 4 4 4 4 4 - w . 

Autos and Parts 

'•^•"•^•'- '^9* *^tl* *'i^#'* *^^ '^•^ *^^ ''^•* '^t' 

Photo Equipment 

€t $> © © €t- © © e- © *> 

Aircraft Parts 

7^ ?^ vK ;?( vK 7( ?( 7^ 7< ?r 

Source. U.S. Bureau ol Ihe Census and 
"Economic Concenlralion," by John Bla.r 

turing. These highly concentrated industries include 
autos (General Motors, Ford, Chrysler and American 
Motors), primary metals (U.S. Steel, Bethlehem, 
Armco, and Aluminum Company of America), chem- 
icals (DuPont, Union Carbide, Dow and Monsanto), 
and electrical machinery (led by General Electric and 

Another one-third of all manufacturing takes place 
in "moderately concentrated" industries where the top 
four companies produce 25 to 50 percent of the indus- 
try output. The final one-third of all manufacturing 
takes place in relatively unconcentrated industries — 
but even in these industries the average share of indus- 
try output held by the top four companies in each 
industry was more than 15 percent. 

The available information on economic concentra- 
tion and its effects is skimpy and sometimes open to a 
variety of interpretations. Nevertheless, it is clear that 
a very high degree of economic concentration exists in 
the U.S. economy. 

No simple answer can explain how all this eco- 
nomic concentration came about. In part, big cor- 
porations are the result of self-generated internal 
growth and the technological imperatives of mass pro- 
duction, which in turn depend on expanding mass 
markets and widely distributed mass buying power. 
Advertising is another part of the explanation, par- 
ticularly in consumer goods industries. 

"Mergers, more than any single economics factor, 
explain the existing structure of the industrial sector 

of the United States economy," says Willard F. 
Mueller, economics professor at the University of 
Wisconsin and former chief economist at the Fed- 
eral Trade Commission. "Most contemporary big 
businesses owe their relative size to merger-accelerated 
growth, and current levels of concentration in many 
industries are directly linked to one or more of the 
merger movements that have swept through American 

The first big merger wave from 1897 to 1905 in- 
volved consolidations of thousands of previously com- 
peting firms into "trusts" or giant holding companies. 
Some 2,800 mergers took place during these years, 
producing such enduring corporate giants as U.S. 
Steel organized by J. P. Morgan and Standard Oil of 
New Jersey organized by John D. Rockefeller. Many 
other giants of American industry like General Elec- 
tric, General Motors, DuPont and American Tobacco 
were formed from consolidations of hundreds of com- 
peting companies. 

"There can be little doubt that one of the driving 
forces behind the formation of many of these con- 
solidations was the desire to eliminate competition," 
says John Blair, now a professor at the University of 
South Florida and formerly chief economist for the 
Senate Subcommittee on Antitrust and Monopoly. 

The second big round came in the late 1920s when 
more than 4,600 mergers took place. This time the 
food industry and food distribution were added to the 
iron and steel and machinery as major areas of con- 



centration. General Foods and retail food chains like 
A&P, Safeway and Kroger were organized during 
these years. Then, as now, investment bankers and 
financiers played a key role in stimulating merger 

The third big merger movement started in the late 
1950s and sharply accelerated in the 1960s, reached 
a record 4,500 mergers in 1969. The years 1965 
through 1972 saw some 19,000 mergers. A new twist 
of this third merger movement was the conglomerate 
pattern of acquisitions of companies totally unrelated 
to the product lines of the acquiring company. In pre- 
vious merger movements, the pattern was elimination 
of competition (horizontal mergers) or integration 
backwards and forward as in a steel mill acquiring 
an iron ore company and a steel fabricating company 
(vertical mergers). 

But the conglomerate merger movement brought to- 
gether companies operating in many different indus- 
tries and in many different markets and in many 
different countries. Textron was one of the early con- 
glomerates. International Telephone & Telegraph is a 
multinational conglomerate of extraordinary size and 
complexity. Much of ITT's merger and acquisition 
program was handled by the Wall Street investment 
banking firm of Lazard Freres & Co. In a 1971 study 
of ITT and four other major conglomerates, a staff 
report of the House Judiciary Subcommittee on Anti- 
trust concluded that "In view of the large income 
derived from merger transactions, it is evident that 
the major investment banking firms have been sub- 
stantial contributors to the magnitude of the merger 

One effect of conglomerate mergers is to raise 
"aggregate concentration" rather than "market con- 
centration" in the U.S. economy. The antitrust laws 
are fairly explicit in restraining horizontal or vertical 
integration within an industry, but much less so on 
conglomerate mergers which pull together non-com- 
peting business firms. 

Economists don'f understand the conglomerate 
urge. "In the case of the large conglomerate, our 
theory of the firm is clearly inadequate to enable us 
to understand its nature or predict its performance — 
more or less necessary prerequisites for advice to 
policymakers — though the combined trends in con- 
centration and growth of conglomerates into concen- 
trated markets is sufficient cause for concern," says 
James W. McKie, a Vanderbilt University economics 
professor writing in a National Bureau of Economic 
Research survey of industrial organization. The re- 
cessions of 1969-70 and 1974-75 did more to slow 
down conglomerate mergers than any effective anti- 
trust regulation. 

The big U.S. -based multinational corporations op- 
erate through 10,000 subsidiaries and foreign affiliates 
all over the world with no effective regulation. These 
multinational corporations — including almost all of 
the "Fortune 500" industrial firms and the top 50 
banks — are aggressively expanding their foreign op- 
erations, often making profitable deals directly with 

communist governments. For many of them, foreign 
earnings make up more than 50 percent of total in- 
come. So they juggle foreign and U.S. production and 
profits to avoid U.S. taxes. 

The multinationals export production and jobs of 
American workers. They export capital and technol- 
ogy developed in the United States at the expense of 
the American taxpayer. U.S. multinational expansion 
overseas, often in the newest technological industries, 
slows U.S. economic growth and cuts job opportuni- 
ties at home. This is eroding the nation's industrial 
base, and the shutdowns on U.S. plants — as pro- 
duction and jobs are shifted abroad — are undermining 
the strength of large and small communities through- 
out America. 

Congress failed to act in 1974 on the AFL-CIC- 
supported trade legislation to deal with these prob- 
lems, but the problems won't go away. 

"Explosive growth by acquisition by our largest 
corporations has resulted in changes that confront the 
public with a situation where the American economy 
will be dominated by virtually self-contained eco- 
nomic domains," the House antitrust staff report 
warned, with the possibility that "the American econ- 
omy will be dominated by a few hundred business 
suzerainties under whose influence a multitude of 

The Cumulative Total of 
Corporate Mergers, 1963-1973 
(In Manufacturing and Mining) 

1963 64 65 66 67 68 

Source Federal Trade Commssio 

70 71 72 73 




The Top 10 U.S. Corporations 

How They Ranked in Assets, Sales, Profits and Employment in 1973 

SALES Sb.lhons 5 

Bank of America 

' Manhattan Bank 

Federal National Mortgage 

J.P, Morgan & Co. 

General Motors 

Manufacturers Hanover Bank 

Chemical Bank 

General Motors 

Standard Oil Calif, 

Sears Roebuck 

■ _ 

''■^f^!J;L?-:L? ^.^. ^''^P'-OYEEs 

[^|# H 1 ^ l y 1^ I] [ General Motors 

f#[# | #[#|i AT&T 

\W I ^ I ^ I ^ I f Ford Motor Co. 

f gf ' ''' 

WW J Sears Roebuck 

W|# I General Electric 

|# | J I IBM 

# ■ Chrysler 

! #[€ I Woolworth 

l#ir I I I I ~ Western Electric 



small, weak, quasi-independent coqjorations will be 
permitted a subordinate and supplemental role." 

This pictures does not bother such "avant garde" 
social critics as John Kenneth Galbraith who sees "the 
highest level of development" in such corporate giants 
as General Motors, General Electric and IBM. In this, 
Galbraith echoes the big business view of romantic 
glorification of swashbuckling "captains of industry." 

One unfortunate result of this willing acceptance of 
big business concentration of economic power — which 
Galbraith would like to socialize — is a too-easy rejec- 
tion of antitrust policy or regulation as a national pur- 
pose and a rejection of business competition as an 
essential part of American economic life to benefit 
consumers and to achieve economic progress. 

Persistent critics of Galbraith's theories include Pro- 
fessor Mueller and Professor Walter Adams of Michi- 
gan State University. They argue that Galbraith's 
"new industrial state" is based on a false "technologi- 
cal imperative," on a wrong assumption that "bigness" 
is the result of technology requirements for large-scale 
production, invention and innovation. In fact, they 
point out, careful studies on this subject show that 
productive efficiency, invention and innovation slow 
down in big corporations and in highly concentrated 

There is, therefore, a strong economic argument 
for government policy on economic concentration — 
in addition to the basic social and political need to 
control and, wherever possible, to prevent gigantic 
concentrations of business power which can under- 
mine democratic institutions. 

No simple summary of U.S. policy or economic 
concentration is possible — and the results are some- 



what ambiguous. Although "aggregate concentration" 
has increased, the situation in "market concentration" 
is less clear. The twists and turnings of antitrust pol- 
icy in U.S. history don't paint a clear picture. 

In 1890, passage of the Sherman Act made it 
illegal to "monopolize trade" and Congress also out- 
lawed all "combination or conspiracy in restraint of 
trade." In 1911 the Supreme Court broke up the 
Standard Oil trust and the tobacco trust, but set forth 
a "rule of reason" that only unreasonable restraints on 
trade were illegal. This seriously weakened all sub- 
sequent antitrust policy. 

In 1914 Congress passed the Clayton Act to out- 
law specific anti-competitive actions like price dis- 
crimination and interlocking directorates. Also in 
1914 Congress set up the Federal Trade Commission 
to fight anti-competitive, monopolistic practices of 
U.S. corporations. And in 1950 the Celler-Kefauver 
Antimerger Act stopped horizontal mergers by acqui- 
sitions or purchase of assets. 

One source of continuing ambivalence in the na- 
tion's approach to antitrust policy is the difference 
between "structure-oriented" experts who say the 
mere possession of concentrated, monopolistic power 
is wrong and should be broken up and the "action- 
oriented" experts who say that only illegal conduct is 
wrong and should be stopped. 

Either way, it's important to have the facts — and, 
unfortunately, accurate information on the structure, 
conduct and performance of the big banks and cor- 
porations is woefully lacking. The massive studies and 
reports of the Temporary National Economic Com- 
mission of the New Deal era are far out of date. 

The Senate Small Business Committee headed by 



Sen. Gaylord Nelson (D-Wis.) has spotlighted the 
role of giant corporations in agribusiness, energy and 
natural resources, and the need for more informative 
corporate reporting. 

Public hearings by the Senate Antitrust Subcom- 
mittee headed by the late Sen. Estes Kefauver (D- 
Tenn.) and more recently by Sen. Philip Hart (D- 
Mich.) have divulged important industry information. 
And Senate Government Operations Committee stud- 
ies pushed by Sen. Lee Metcalf (D-Mont.) and Sen. 
Edmund Muskie (D-Maine) have revealed the extra- 
ordinarily high concentration and control of the na- 
tion's biggest corporations in the top six New York 
City "superbanks." But much more information is 
needed on the ownership and on the domestic and 
foreign operations of the big banks and big corpo- 

Workers have a direct interest in getting more in- 
formation about the corporations with which they 
bargain. Annual corporation financial reports don't 
give enough information and it's difficult to bargain 
effectively with subsidiaries of big corporations. Fi- 
nancial information on subsidiary companies is hidden 
in consolidated financial reports of conglomerates. And 
U.S.-based multinational firms can export technology, 
production and jobs to their foreign subsidiaries be- 
fore unions can find out what's going on. 

The big, muhi-product, multi-market, multinational 
corporations don't want to reveal line-of-product sales, 
cost, price and profit data. They want to keep the 
secrecy barrier which protects them from criticism and 

Much more adequate public disclosure of basic eco- 
nomic information is needed. The quarterly line-of- 
business reports now required of the top 345 manu- 
facturing corporations by the Federal Trade Commis- 
sion are only a small step in the right direction. 

Also aimed in the right direction are the model 
corporate disclosure regulations proposed by a federal 
interagency committee to get detailed information on 
corporate structure, voting stock ownership, interlock- 
ing corporate directorships, and many other aspects of 
the structure and operations of big corporations. 

The AFL-CIO has called on Congress for a compre- 
hensive investigation of the structure of the U.S. econ- 
omy, the role of mergers and acquisitions at home and 
abroad in increasing economic concentration, the in- 
terlocking relationships among the giant corporations 
and banks, their control of key parts of the U.S. econ- 
omy, their effects on prices, income distribution, 
America's position in the world economy and the im- 
pact of these tremendous aggregations of economic 
power on democratic institutions. 

Without adequate information, economic policy- 
making is seriously handicapped. Accurate, timely, 
comprehensive information i^ an essential check on 
concentrated economic power. "Sunlight is the best 
disinfectant" was the advice from Supreme Court 
Justice Louis D. Brandeis, an early opponent of ex- 
cessive business power. 

How One Big Bank Controls 
Other Major Corporations 

Leverage Control Stock Ownership 
and Interlocking Directorates* 

Reprinted from May 1975 


(Staff Note. — According to the most recent information at the Federal Re- 
serve System, 30 commercial banks did not participate in the July, 1975 Monthly 
Interest Rate Survey. Half of these banks (18) are among the .'JOO largest banks 
(according to deposits) ranked in Moody's Bank & Finance Manual (as of 
Dec. 31, 1974). The largest of these 18. Security Pacific National Bank of Los 
Angeles, was ranked No. 10 in size. The next largest, Wachovia Bank and Trust, 
N.A.. of Winston Salem, N.C., ranked 29th.) 

Board of Governors, 
OF THE Federal Reserve System, 
Washington, B.C., September 16, 1975. 
Mr. Victor Reinemer, 

Staff Director, Subcommittee on Reports, Accminting and Management, Com- 
mittee on Government Operations, U.S. Senate, Washington, B.C. 
Dear Mr. Reinemer: Pursuant to your request of September 10, 1975, please 
find enclosed a list of those commercial banks that participated in the Board of 
Governors' Monthly Interest Rate Survey for the month of November 1974, and 
that failed to so participate for the month of July 1975, the latest survey period 
for which results are available. Also enclosed is a list of seven commercial banks 
that reported rates on consumer installment loans for the November 1974 survey 
period, and that failed to report such rates for the July 1975 survey. These 
seven banks do, however, continue to participate with respect to other portions 
of the survey. 

It should be noted that all of the banks listed on the attached schedules may 
not have permanently discontinued their voluntary participation in the Board's 
Monthly Interest Rate Survey as a result of the Board's decision to release indi- 
vidual bank data, since some of the listed banks may, for some other reason, 
have failed to respond to the July 1975 survey. 

If I can be of any further assistance to the Subcommittee in this matter, please 
feel free to contact me. 
Sincerely yours, 

Kenneth A. Guenther, 

Assistant to the Board. 

Banks which voluntarily parti<yipated in the Board of Governors' November 1974 
monthly interest rate survey but not in the July 1975 survey 

Bank Name City and State 

Maplewood Bank & Trust Co Maplewood, N.J. 

Hempstead Bank Hempstead, N.Y. 

Security National Bank Hempstead, N.Y. 

Hazelton National Bank Hazelton. Pa. 

Central National Bank Cleveland, Ohio 

Dollar Savings & Trust Co Youngstown, Ohio 

American National Bank of Md Silver Spring, Md. 

Wachovia Bank & Trust Co., N. A Winston Salem, N.C. 

South Carolina National Bank Charleston, S.C. 

Bankers Trust of South Carolina Columbia, S.C. 

Fort Lauderdale National Bank Fort Lauderdale, Fla. 

St. Petersburg Bank and Trust Co St. Petersburg, Fla. 

Exchange National Bank of Tampa ^ Tampa, Fla. 

Fulton National Bank of Atlanta Atlanta, Ga. 

Citizens and Southern National Bank Savannah, Ga. 

First National Bank of Commerce New Orleans, La. 

LaSalle National Bank Chicago, 111. 

Union National Bank & Trust Co Joliet, 111. 

Peoples Bank & Trust Co Cedar Rapids, Iowa 

Council Bluffs Savings Bank Council Bluffs, Iowa 

First National Bank of Dubuque Dubuque, Iowa 

City National Bank of Detroit Detroit. Mich. 

Detroit Bank & Trust Co Detroit, Mich. 

First National Bank in Mount Clemens Mount Clemens, Mich. 

Citizens National Bank & Trust Co Baytown. Tex. 

Security Pacific National Bank Los Angeles, Calif. 

Great Western National Bank Portland, Oreg. 

First Security Bank of Utah Ogden, Utah 

Valley National Bank of Arizona Phoenix, Ariz. 


Banks which reported consumer installment rates for the Board of Governors' 
November 1974 monthly interest rate survey but not for July 1915 survey 

Bank Name City and State 

First Agricultural Bank of Berkshire Pittsfielcl, Mass. 

New Jersey Bank, N. A Clifton, N.J. 

North Carolina National Bank Charlotte, N.C. 

Society National Bank of Cleveland Cleveland. Ohio 

Ohio Citizens Trust Co Toledo, Ohio 

Provident National Bank Bryn Mawr, Pa. 

First <& Merchants National Bank Richmond, Va. 

[From The Washington Post, Sept. 12, 1975] 

Vepco Fined $60,000 for A-Plant Fault 

(By Hal Willard) 

The strongest penalties ever imposed on the nuclear power industry were levied 
yesterday against the Virginia Electric and I'ower Co. for violations in connection 
with construction of its four-reactor plant over a geologic fault in Louisa 

The Atomic Safety and Licensing Board fined Vepco $60,000, the maximum 
allowed by law, and set up stringent conditions that the company must meet to 
maintain a nuclear license for its North Anna plant. 

Vepco characterized the decision yesterday as "novel" and said the company 
"expects to appeal." 

In the history of the use of nuclear energy only nine civil penalties have been 
levied against power companies. Vepco has received three of them. No other 
company has received more than one. 

"In view of the licensee's high rate of ciyil penalties," the ASLB said, ". . . the 
staff (of the Nuclear Regulatory Commission) is requested to evaluate the li- 
censee's performance in depth to determine whether additional monitoring . . . 
is needed beyond that employed in the routine follow ups to violations and 

Vepco was convicted of making 12 "material false statements" to the NRC in 
reference to the geologic fault. In essence, they were that Vepco said there were 
no faults at the North Anna site and none were su.spected. All parties, including 
Vepco, now agree the fault exists. 

The law says a fine of $r),(X)0 is the maximum that may be imposed for such a 
violation : 12 violations equals $60,000. 

Three conditions were imposed with the fine : 

The chief executive officer of Vepco shall issue "a statement of policy express- 
ing the strong commitment" of Vepco to "fully discharge all of its responsibilities, 
duties and obligations" under the Atomic Energy Act and NRC rules and reg- 
ulations . . ." The ASLB also said it wants Vepco to state that it understands the 
need for NRC evaluation of all safety matters. This must be issued within 30 

Vepco "shall prepare a management evaluation and analysis of its entire cur- 
rent organizational structure from the point of view of its effectiveness in im- 
plementing the statement of policy required above." The ASLB said it wants to 
make sure Vepco has the "management characteristics needed to provide the 
necessary confidence in the ability" of Vepco to implement is statement of 
policy. , 

Vepco "shall analyze and report on its contract policy with those contractors' 
it hires for projects requiring permits or licenses from the NRC. "The intent of 
the board is to assure that contractors employed by the licensee are committed 
and clear as to their obligations and responsibilities . . ." 

The geological conditions at the North Anna site were investigated by Vepco 
consultants in 1968 and 1969. They said they found no fault. An outside geologist 
found the fault in 1970 and Vepco's consultants confirmed the fault in May, 1973. 

Vepco said yesterday : "Naturally, we are disappointed because, as all parties 
agreed, the statements made by Vepco were believed to be true at the time they 
were made. There was never any intent to mislead or deceive anyone." 


The VSLB addressed itself to that point : If Vepco "were permitted to avoid 
responsibility because its agents or its independent contractors failed to inform 
it of material information, it could thwart the purpose" of the Atomic Eueiry 
Act which includes protecting "the health and safety of the public." 

All nuclear power plants are designed to withstand earthquakes. However, 
none have been subjected to an earthquake so the design isn't proven. It is feared 
that if the design failed, lethal amounts of radioactivity might be released from 
a nuclear plant. 

The presence of a geologic fault means the earth has moved at some prior 
time— and the likelihood is greater that it will move again there as opposed to a 
location that has always been stable. ,, , , .i. * 

Previous official government actions have declared the North Anna site safe 
under the NRC criteria, which stipulates that geologic evidence show the earth 
has been stable for at least 3r,.()00 years. The North Anna site, most geologists 
aereed at hearings there, has been stable for millions of years. v •,*. ^ 

However, most also said that nuclear power plants should not be built on 

"^Thf 'iSv loS'sVeSon is the culmination of efforts by a citizens' enviroi. 
mentalist group the North Anna Environmental Coalition, that brought the 
SSstence .ff the fault to public attention in August, 1973, and has pushed for 

"^: e?:i"nSSSmrbrought the original charges ofmaking material 
falsfstrtemenJs against Vepco, citing 19 violations. The NRC staff agreed on 

^'^^S^Zd^pcIISTSstSice SXfault to the NRC in May, 1973 The late 
Dr John F nkl ouser, a professor of geology at John Tyler Community Co ege 
hi ChesteiYa disco ered the fault in February, 1970, and said in ^ deposition 
to the NRC that he reported his findings to the Vepco engineer Herbert Engel- 

™ En.'^'lnuu/Il'stmtd at a hearing that he didn't remember being tolcl^ and Vepco 
officious tettt Hi ha he never reported the Funkhouser discovery to the company. 

The truthf 1 ess and completeness of information provided by tbe Jiower c^m- 
„aii es to the NRC "goes to the very heart of the regulatory process, the safet 
boa -d said The NRC depends on "quality assurance" programs withm each 
power cSmpanv to back up its own inspections in an effort to guarantee safet.v^ 
^ n it^stafe neiit yesterday, Vepco said "if ultimately the company is required 
to m the fi^, it would be excluded as an expense for rate-making Purposes ^ 

Cmipanv officials originally had testified at a safety board hearing that an> 
fines would be charged to rate paying customers, but the Virginia Corporation 
Commission said fines must be paid out of profits. ^ , -n, T^^^mnkiflP^ nnd 

The safetv board's report was signed by chairman John B. Farmak ides anrt 
John f'. Woif. The third member, Lester Kornblith, Jr., filed ^'^^"l^""^,;^'^;!;"^" 
ing In part," and declaring that he felt there were only four material false state- 
ments, but that one was so blatant it should carry a $(;nOOO fine. 



I , P 6007 



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